The Green Behind Green Crude

Investors are a tough crowd to cultivate. Yet in the pond that is the biotechnology market, one product seems to be rising to the top like the green sludge it is: algae. Its potential use as biofuel is drawing venture money from places you might not expect. The reason: It could be both environmentally responsible and profitable.

The so-called “green crude” has piqued the interest of media from coast to coast, government agencies trying to decide how to regulate the stuff, local governments hoping it will perk up the economy, and investors with deep, deep pockets.

Think Bill Gates. Think the Rockefellers.

Think big oil.

The promise of a next-generation biofuel is so enticing that even the world’s biggest oil companies are investing in the very product that could make our reliance on fossil fuels go the way of the dinosaur. And it’s a gamble that’s bringing jobs and millions of dollars to San Diego, along with optimism that there’s more to come.

The largest oil refiner in the world, Exxon Mobil, is banking on the work of Synthetic Genomics, a La Jolla company founded and led by famed biologist J. Craig Venter, best known for his role in sequencing the human genome. Exxon Mobil has pledged $600 million toward algae research over the next 10 years, with $300 million earmarked for Synthetic Genomics. The companies cut the ribbon on a new greenhouse research facility at the La Jolla campus last month.

“From the Exxon Mobil perspective, we’re optimistic,” Exxon Mobil spokeswoman Cynthia Bergman White says of the algae biofuel partnership. “Everything is on track and even though it is still early days in the project, we are very pleased with the progress.”

Stephen Mayfield, director of the San Diego Center for Algae Biotechnology research consortium and a co-founder of Sapphire Energy, says oil companies are playing against the clock. While it could take a decade or more to determine whether algae will be a commercially viable fuel alternative, it’s widely estimated that fossil fuel reserves will dry up within the next 50 years if our current consumption continues and no new reserves are discovered.

“Oil companies take a look at this and know that they don’t have to solve this problem in the next year, or the next 10 years,” Mayfield says. “Even though it is competition, they’d be paranoid to worry about us. They have so much money that if algae as fuel turns out to be true and viable, they’ll buy and own it.”

The rush of funding is especially relevant here, where leaders are hoping to establish San Diego as a green-energy hub.

Sapphire Energy likewise takes some of its research funding from major oil companies, and has former BP executives in both management and board member roles. Its investors includes Cascade Investment, an investment holding company owned by Bill Gates, and Venrock, the venture capital arm of the Rockefeller family.

Meanwhile, BP is simultaneously investing locally in a different type of biofuel — a plant derivative called cellulosic ethanol — from San Diego’s Verenium Corp. Last month BP announced it would pay $98.3 million for Verenium’s cellulosic biofuels business while keeping a partnership with the local company.

And San Diego-based Kent BioEnergy receives funding from a variety of undisclosed sources, including big oil, said David Pyrce, executive vice president of business development.

While hunting for commercially viable algae biofuels, Kent BioEnergy generates revenue by putting its algae to work cleaning up water pollution and producing additives for livestock feed. While algae biofuels are newly gaining the attention of investors, research funding can still be tough to come by in today’s economic environment, he says.

“There’s a lot less money to go around. The pie has shrunk,” Pyrce says.

There’s a big push to make sure San Diego researchers get a hefty slice of the pie. About 30 local companies are working in algal biofuels, annually providing nearly $28.8 million in payroll and $56.2 million in economic activity for the San Diego region, according to recent San Diego Association of Governments estimates.

By creating consortiums and collaborations including the San Diego Biofuels Initiative, the local biofuel industry is going after state and federal funds. So far, the effort has earned a $4 million California Department of Labor grant to train more people to work in biofuels, and a $9 million, three-year award from the Department of Energy for the San Diego Center for Algae Biotechnology to further its algae biofuel research.

“Biofuels are just hot, hot, hot in this market,” says Holly Lepre, vice president for CleanTECH San Diego, a nonprofit that’s among the biofuel industry’s biggest proponents.

Biotech executives from near and far will convene at downtown San Diego’s Hard Rock Hotel next month for the California Industrial Biotech Conference, sponsored by San Diego’s Biocom and San Francisco’s Bay Bio trade groups. An afternoon session has been dedicated to financing strategies for industrial biotechs. Industry experts are expected to discuss how to tap into the funding that’s out there, from those coveted oil company alliances to venture capital to federal stimulus dollars.

The federal government has taken particular interest in Sapphire Energy’s work. The company has received $105 million in grants from the Department of Energy and the Department of Agriculture, the largest federal government award for algae to date, according Tim Zenk, Sapphire Energy’s vice president of corporate affairs.

Zenk says recent awards to San Diego researchers are the exception, with government investment in alternative fuels falling woefully short.

“The government’s investment is very inadequate. They need to do a lot more,” says Zenk. “Private investment is another story. Venture capital firms and very large family wealth trusts like you have seen investing in Sapphire Energy are making significant investments and making this technology a reality today.”

Mayfield, who has studied the molecular genetics of green algae for about 25 years, concurs that biofuel research has been historically underfunded. Part of the problem is that algae biofuel is tough to classify. Is it a plant, regulated by the U.S. Department of Agriculture? Is it a fuel, regulated by the U.S. Department of Energy? If algae could be used to fuel military vehicles, would it fall under the U.S. Department of Defense’s jurisdiction?

Algae as a source for biofuel has gained greater visibility in recent years as it becomes clear that corn-based ethanol isn’t a panacea for dwindling oil reserves, Mayfield says. And while algae takes far less space to grow than corn, it’s still expensive to produce. A gallon of algae-derived fuel today would cost about $10.

Mayfield predicts biofuels will be just part of the equation to meet future energy needs. Solar, wind, algae and even corn will have to work together to replace petroleum. He just hopes the enthusiasm and funding for algae-based biofuels doesn’t run out.

Says Mayfield: “There’s funding right now, but I have to wonder: what are people’s staying power? Are they going to say in a few years, ‘We tried it, it didn’t work.’ We’re not going to fix this overnight. It’s going to be a 10-year process. How are we going to keep in people’s minds that we need to stick with it to make it work?”

Please contact Jennifer McEntee at jenmcentee@yahoo.com.