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San Diego’s Algae Industry Struggles To Float On Fuel Alone

Evening Edition

Above: The world’s largest biotechnology convention is in San Diego this week.  15,000 people from 65 countries are here to talk about issues like stem cell research, genome sequencing, and the shifting role of large pharmaceutical companies.  KPBS Business and Environment Reporter Erik Anderson says the BIO 2014 Convention is shining a light on San Diego’s biotech cluster.

Aired 6/25/14 on KPBS News.

Six years ago, sustainable biofuels were the next big thing in biotech, and algae was supposed to drive the way forward. But today's energy landscape has changed dramatically, and algae companies have had to take a left turn.

San Diego has been hosting this week BIO 2014, the world's largest annual biotechnology convention. It was last held here in 2008. Back then, sustainable biofuels were the next big thing. And algae was supposed to drive the way forward.

But six years later, algae companies have had to take a left turn.

As one of the world's leading algae researchers, UC San Diego's Stephen Mayfield helped kickstart the whole algae biotech industry. In a greenhouse, where algae-infused water bubbles in giant plastic bags, Mayfield describes all the incredible uses he's helped discover for this slimy little organism.

"We know that we can extract oil from it," he says.

That's perhaps the most promising use of algae: fuel. Cultivate algae properly, and it'll produce oil that can be refined and dropped right into your car's gas tank.

Algae researcher Stephen Mayfield stands next to bags of bubbling algae-infused water. June 20, 2014.

And the beauty of algae is that it feeds on the carbon dioxide emitted by burning fossil fuel. It's a carbon neutral system that addresses climate change without forcing us to scrap existing transportation systems.

"We've flown jet aircraft on the fuel. We've driven boats on the fuel. Cars, you name it. So scientifically, it's a done deal. What the issue is now is economics," Mayfield says.

But economics is no small issue for the companies trying to commercialize algae-based fuel.

"It's been more challenging than many people assumed," explains Martin Sabarsky, CEO of a San Diego-based algae company called Cellana. "A lot of this is based on the harsh brutality of the marketplace."

In 2008, Sabarsky says, algae companies trained their sights on fuel because oil prices were skyrocketing.

"There was an expectation that prices would keep going up," he says. "And it's really leveled off or gone down since 2008."

With oil prices down, pressure has eased on finding alternative fuel sources.

"Companies that have kept fuel only as their business model are kind of the minority now," Sabarsky says. "You've seen a larger number of these companies that had 'biofuel' or 'energy' or 'petroleum' in their names. They've gone so far as to take that out of their names."

Take Sabarsky's own company. Cellana used to go by HR BioPetroleum. But then a big deal with oil giant Shell fell through, and Sabarsky and his colleagues opted for a more neutral name.

Cellana still wants to bring algae-based fuel to the masses, and its workers are producing it at a facility in Hawaii. The company also has signed on to deliver large amounts of the "green crude" to Finland's Neste Oil once the fuel is priced to compete.

But for now, Cellana focuses on turning algae into livestock feed and omega-3 supplements. The company figures people will pay more for a bottle of pills than they will for a gallon of gas.

As Sabarsky holds up a vial of Cellana's omega-3 oil, he says, "This right here is lovingly referred to as liquid gold."

Supplements make money fast. A commodity like fuel, which needs to be abundant and cheap, doesn't.

"I don't believe you're going to find any algae companies that are going to hang their hat on energy," says Mike Mendez, who helped found another San Diego-based algae firm, Sapphire Energy.

But after a few years at Sapphire, Mendez couldn't see algae-based fuel's path to profitability. So he left to launch another biotech company, Pareto Biotechnologies. He says the energy market had changed dramatically.

"The number one factor is fracking," he says. "Fracking has changed the landscape."

Fracking involves injecting fluids into the ground at high pressure. It's being used to extract lots of new natural gas, and it's happening within U.S. borders.

Back when Mendez helped get Sapphire off the ground, the United States was importing record amounts of energy. Politicians worried we'd never be energy independent without alternative fuel sources.

Fast-forward to 2014, and imports have fallen to a 20-year low. We're approaching energy independence, and fracking is getting us there.

Algae just doesn't look as urgent anymore.

"We were making a product that had to be cheaper than bottled water," says Mendez. "And with that is a whole set of headaches. The things that have stalled it were just out of our hands."

But Jim Lane, publisher of the online news site Biofuels Digest, says the algae industry hasn't given up on fuels.

As he sees it, algae is just going through a normal — if awkward — growth phase.

"Every technology will start out serving small needs," Lane says, pointing out that petroleum found its niche as lamp oil long before it ever found its way into a gas tank.

"I think it's a mistake to look at things getting into business and finding a business and making a profit as a diversion. It's a necessary first step."

Everyone else I talked to said the same thing. Algae companies haven't abandoned biofuels. They just need to push skin creams and supplements right now. They need to tide themselves over until biofuels stand a real chance of competing with oil.

Still, that makes the story of algae a bit ironic. In 2008, it seemed poised to replace fossil fuels. Now, one of the biggest algae companies sells a drilling lubricant used to extract even more fossil fuels.

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