5/28/2008 @ 1:35PM

Turning Algae Into Gasoline

Start-up Sapphire Energy is promising an innovation that sounds as miraculous as a water-to-wine transformation.

On Wednesday, the company took the covers off what it calls “green crude”–a liquid fuel chemically identical to gasoline but not dependent on either a food source or agricultural land. Even better, it promises to be “carbon neutral”; even though vehicles that burn the fuel will emit carbon, creating green crude involves pulling just as much carbon dioxide out of the atmosphere as it will put back in.

Sapphire, based in San Diego, plans to make its fuel from algae microorganisms, salt water, carbon dioxide and the power of the sun. Chief Executive Jason Pyle was deliberately vague concerning how the technology works, but he says the company, which was formed in May 2007, has been able to produce 91 octane gasoline and has had it analyzed at a refinery.

“We created a process that relies on photosynthesis. It absorbs CO2 to produce a carbon molecule,” Pyle said in an interview with Forbes.com. Pyle has been involved in two other start-ups and has a background in biotechnology, engineering and physics. “We believe we’re setting the benchmark for an entire new industry.”

Other alternative fuel companies such as Solazyme of South San Francisco, Calif., are using algae to produce biodiesel. Like ethanol, biodiesel attracts water and thus cannot be shipped in existing pipelines. Both ethanol and biodiesel also have lower energy density than traditional gasoline and diesel fuels. Pyle says Sapphire’s green crude has the same energy density as gasoline and can be shipped in existing pipelines and refined the same way gasoline and diesel are.

Amyris Biotechnologies of Emeryville, Calif., is also developing renewable fuels that are chemically identical to gasoline, jet fuel and diesel. Amyris announced in April that it will develop a diesel fuel in Brazil from sugarcane, with a production target date of 2010. (See: “Sweet New Fuel.”)

But Pyle asserts that Sapphire’s technology can scale to a much greater degree than Amyris can, because Sapphire is not dependent on a food source as its fuel. “Agricultural land is of limited supply. We have a huge amount of land that is completely non-agricultural that we can use, desert land,” says Pyle. His aim is to produce 10,000 barrels a day in facilities that may be located on desert land across the southwestern and southern U.S.

Sapphire has raised $50 million from respected venture capital companies ARCH Venture Partners and Venrock, as well as the Wellcome Trust of the U.K., the world’s largest medical research foundation. The company has been doing some work in Oklahoma but has not yet announced where its first test facility will be located. It aims to have its first facility operational in three years.

The company has elicited technology help from the Department of Energy’s Joint Genome Project; the University of California, San Diego; the Scripps Research Institute; and the University of Tulsa.

“Almost every other [alternative fuel company] out there is a refiner,” says Robert Nelsen, managing director at ARCH Venture Partners. “They are taking something and refining it. We are producing something.”

Nelsen and Pyle believe that biofuels dependent on a food source or agricultural land cannot be scaled to affect more than 1% of the gasoline we consume annually in the U.S. “When we started this company, we wanted to create a whole new category that didn’t have a set of constraints preventing it from growing to a large scale. We’re not against Amyris or any of these companies … they will see success in their niches,” says ARCH’s Nelsen. “We wanted to find something that you could scale infinitely.”

Nelsen wouldn’t speculate what percent of the fuel supply Sapphire might replace, but he wants it to be a lot more than 1%. “We’ve talked to people in the oil industry who’ve said, ‘This is the first thing I’ve seen that can change the game,’” says Nelsen. “We want to take it to a whole new level.”