San Antonio-based refiner Tesoro Corp. has agreed to purchase algae-derived “green” crude oil that will be made into diesel fuel at its West Coast refineries.
Tesoro will buy the oil from California-based Sapphire Energy Inc., which maintains an algae farm in Columbus, N.M., about 80 miles west of El Paso. Use of algae-derived crude reduces the need for fossil fuels.
Full terms of the deal were not disclosed, but Sapphire said Tesoro will be its first commercial customer.
Tesoro’s agreement calls for it to buy the crude through the end of this year with provisions to extend its purchases beyond that. Also, Tesoro has the option to buy more of the crude as Sapphire expands production.
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Sapphire, which counts Bill Gates and Monsanto among its investors, expects production to reach 100 barrels of crude a day in late 2014.
The deal “is enormously important for the industry,” Sapphire CEO Cynthia Warner said in a statement, “as it validates the benefits and advantages of green crude and confirms its place as a market-viable, refiner-ready, renewable crude oil solution.”
Tesoro vice president of renewable development Joel Larkins said in a statement that the company “is continuously looking at new technologies for producing renewable fuels.” Sapphire’s crude “shows promise as an alternative fuel solution.”
Sapphire’s first barrels of oil will be trucked to Tesoro soon, said Tim Zenk, Sapphire’s vice president of corporate affairs.
The crude farm now produces two barrels of oil a day.
“That’s rather small,” Zenk said, “but this is the first renewable crude oil every invented. You’ve got to start someplace.” Tesoro has agreed to buy “all the amounts that we can make,” he said.
The deal with Tesoro will show that the technology is ready to be used at refineries, he said.
The crude can be refined into liquid transportation fuels, including jet fuel, diesel and gasoline, that are compatible with existing infrastructure and engines, Sapphire said.
Also, algae uses carbon dioxide and returns oxygen to the atmosphere. The oil derived from algae is a low-carbon, renewable crude that reduces carbon emissions, compared with petroleum-based equivalents, Sapphire said.
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Sapphire’s crude farm is funded by more than $350 million in private and public monies, including a $50 million Energy Department grant and a $54.4 million loan guarantee from the Agriculture Department.
The algae-based oil is not yet certified for on-road use, so it will be made into diesel, going into the tanks of farming, construction and other off-road equipment.
Zenk said he expects the green crude to be certified for on-road use by the Environmental Protection Agency within six months.
“The oils that we make are very similar to the batches they’re getting today.” Also, he said the green crude contains almost no sulfur, which makes it easier to refine than high-sulfur oil.
Sapphire’s algae farm — at 100 acres — is the largest in the world. “It’s an above-the-ground oil field,” Zenk said.
To flourish, the algae needs sun, nonpotable water, nonarable land and carbon dioxide, he added. Sapphire buys the carbon dioxide, which is bubbled into its algae ponds.
Sapphire plans to expand the algae farm to 300 acres: “enough to demonstrate the technical economics of a large facility,” Zenk said.
Algae-based crude also uses little or no potable water and little land area, relative to other alternative fuel sources, said Les Shephard, director of the Texas Sustainable Energy Research Institute at the University of Texas at San Antonio.
Sapphire was founded four years ago. Construction of the algae farm began two years ago.
In initial testing, Sapphire’s green crude oil was refined into diesel fuel that is compatible with the nation’s existing network of pipelines, refineries and transport systems, the company said.