Lone Star: Aurora Algae finds a whole new kind of oil for Texas

June 3, 2014 |

Unknown-6An ex-shrimp farm along South Texas’ Grand Strand of Aquaculture and a high-tech algae technology make unlikely partners.

Tracking the first commercial locations and products of the nascent algae industry sometimes feels like the board game known as CLUE.

In the board game, players were supposed to discover, for example, whether the crime was committed by Colonel Mustard in the Lounge with the Knife, or Professor Plum in the Kitchen with the Rope, and so on.

With algae, when the companies reached demo or commercial scale, the structure feels a little bit similar: “Solazyme in Iowa and Brazil with Algenist skin cream”, “Sapphire Energy in New Mexico with drop-in fuel”, “DSM Martek in Kentucky with DHA”.

But a number of companies have been as slippery as the protagonists of CLUE in terms of adjusting their particulars as the science and the markets evolve.

Case in point, Aurora Algae. Once it was known as Aurora Biofuels, and had a pilot plant in Florida and a transformative set of algae strains that it could believe crack the problem of growing algae at scale, outdoors, for some of the high-volume, lower-margin markets that had eluded pond-based companies like Cyanotech and Earthrise.

By 2010, the company was deep in an investigation of Australia as a project location for its first commercial, and had renamed itself Aurora Algae as it unveiled a four-product set around nutraceuticals, pharma, proteins and fuels.

Late last year, the company began a deep investigation of South Texas as a location for the first commercial plant, and the portfolio was further sharpened, essentially to put fuels on the back burner for some time to come, and focus on omega-3 and omega-7 fatty acids as a first commercial project.

Meanwhile, Texas’ aquaculture and shrimp farming center, near Brownsville, could use the lift. As Granvil Treece wrote in the 2014 guide to the Texas Aquaculture Industry:

“Over the last 21 years, the Texas marine shrimp industry has produced 94.5 million pounds of shrimp with a farm-gate value of $244.3M, contributing an estimated $1.466B to the state’s economy. However, the farm-gate price has been low since 2004, recovered somewhat in 2007 and 2008, but farm-gate prices are still  limiting interest in shrimp farming with low prices being experienced.”

Let’s see how algae’s faring.

A visit with Aurora’s management

Aurora Algae in Texas with Omega-3 EPA? It’s a long ways from where the company started — and The Digest caught up this week with CEO Greg Bafalis and corporate affairs chief Paul Brunato to find out the drivers behind the evolution of the strategy.

BD: So, Texas is on the front burner for the first commercial project. Take us through that opportunity.
Greg Bafalis: We went to Australis for cheap CO2, cheap land and the weather, and they are all great,  but we found other factors were even more important.

South Texas' Grand Strand of Aquaculture, from Palacios to Brownsville

South Texas’ Grand Strand of Aquaculture, from Palacios to Brownsville

We moved into Australia in 2010 and ran for 3 years, and we have had a number of real breakthroughs there — in terms of pond design, harvesting systems. Even came up with ways to beat the heat. But mining and natural gas industries have boomed the past few years in Western Australia, where our project was located. The cost basis skyrocketed — not only because of exchange rates which were against us, but also the operating and construction cost.

Aurora Algae’s former demonstration site in Karratha, Western Australia

BD: Give us an example.
GB: In Australia, a good electrician on site costs $140K year, plus you have to fly him home, feed him, and house him. The minute you’d made the investment, the mining or nat gas company would offer 2x, and he’d be gone. You can get those kinds of skills in South Texas at $20/hr.

BD: What types of skills do you need for this kind of a project?
GB: It’s a wide variety of labor. Pond operators, maintenance techies for things like the pumps, electricians for facility with the harvesting and refining system separating the oils. A lot of engineers. Plus, basic laborers. We are a farm after all, there’s a wide variety of skill sets needed.

BD: So, labor made the difference?
GB: In Australia it was the operating expense. For example, we needed a 17 kilometer water pipeline, our own powergen, we had to build a workcamp. It was 25%-30% more capex than South Texas.

BD: What about that great weather?
GB: The growth rates not as strong in Texas as in the better climate, but the cost differential to do it is significant;y lower. If we were doing fuels, it might be different, we might be greatly underwater, but with this product mix, the 30% lower labor costs are important.

BD: What about CO2?
GB: If you buy commercial CO2 delivered $160/ton — and that’s high grade CO2 — that’s your worst case scenario. We have other sources we’re investigating, but even so it is not a big impact on overall costs. It’s not as much about CO2 as much as moving water, and labor. What we do is move a lot of water, and a water source is even more important than weather, CO2 and cheap land.

A typical South Texas shrimp farm; pictured, Southern Star Farm.

A typical South Texas shrimp farm; pictured, Southern Star Farm.

BD: How much labor?
GB: 80 employees for 200 acres we are working towards. We finishing up the demo now, which is basically four 1-acre ponds.

BD: Did all that make Australia unfeasible?
GB: No, Western Australia would work, but I felt we were leaving margin on the table. So we looked farther south in Australia where there was less fly-in fly-out type of expense. Then,  we came across this viable site in South Texas, 30 miles north of Brownsville.

BD: What are the key differences, besides the labor cost and growth rates you mentioned?
GB:  It’s an old 2000 acre shrimp farm, with massive infrastructure to move water,  and 1800 acres of ponds in place. The infrastructure is already there to move water on site, not much pumping is needed and there’s a saline water source, and an intake canal, and very skilled local labor force at a reasonable cost. Same with the discharge, natgas and power pipelines, and plenty of local housing.

BD: How big could a facility become here? You mentioned 200 acres, but there’s a lot more room.
GB: We can put 800 acres of ponds onto this site. That’s a huge farm by nutraceutical and human nutrition standards.

BD: Cost of that 200 acre phase?
GB: $130M at that location.

BD: Going to market – how is that evolving?
Paul Brunato: Our primary focus in phase 1 is supplement side, then phase 2 is pharma. Phase 3 is the protein side

BD: Tell us about the omega-3 market.
PB: The market for omega 3 is primarily from fish oil. It’s 50-70% from fish, then some krill and then smaller sources. Algae is less than 1% of total market, so there’s huge room for growth.

BD: The opportunities?
PB: The non-fish sources growing rapidly — with the stress on fish catch and rising population and demand. So far, the market for algae has primarily been in DHA, which shows up in infant formula. Martek has dominated. But there’s a tremendous opportunity in another omega-3, EPA, which is more used in cardio and for anti-inflammatory.

BD: Why algae?
PB: If you look at the market for health-consciousness, there’s a percentage of people in the omega 3 market very, very receptive to vegetarian sources. And it doesn’t take much imagination to tell the sustainability story about vegetarian sources.

BD: EPA is attractive to whom, in terms of partners?
PB: EPA looks especially good to pharma. But there’s a broader story around supernatural, superorganic, where demand growth for vegetarian sources is forming a perfect storm.

BD: How do you connect that demand to these products. You’re a small company without much shout available in your marketing budgets?
GB: We’re an ingredient supplier, they do the marketing at that level.

BD: Partners, ready to announce any?
GB: We have a number of LOIs, we’re setting that up now. We’ll have those resolved into our launch plans with some some launches by the middle of next year.

BD: 2015, then, for first commercial sales?
GB: We’re in the middle of our GRAS (Generally Regards As Safe) process now, If things go as expected, we should be hitting the market in late 2015 with commercial quantities.

BD: The bottom line?
GB: Things we thought were prohibitive for other countries, we have dialed in now, can do this viably in multiple locations.

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