Sinopec, Sapphire Energy project unveiled in China; wins US-China EcoPartnerships nod

July 10, 2014 |

chinaThe Digest has heard from China that Sapphire Energy’s and Sinopec’s algae-derived renewable crude oil project has been selected for the U.S.-China EcoPartnerships program, and that the announcement is being made overnight US time in Beijing, China, by the U.S. Secretary of State and the People’s Republic of China State Councilor.

Details on the project are sketchy at press time. Clearly, a partnership with the world’s second largest oil company means “fuels” — possibly some chemicals in there. Our understanding is that the two companies are collaborating toward a large-scale farm or farms, subject to the construction of a Las Cruces-sized pilot facility, construction for which would begin in 2015 with a late 2015 or early 2016 complete date.

Sapphire CEO C.J Warner said in a released statement:

“Together, we will demonstrate that crude oil from algae can be produced with favorable economics; that it can be integrated into existing fuels distribution networks; and that it will deliver substantial advantages for the reduction of CO2 emissions in both nations.

“I want to thank U.S. Secretary of State John Kerry, State Councilor of the People’s Republic of China Yang Jiechi, and all the representatives from both countries for their work in moving this EcoPartnership forward. We’re ready to get to work.”

The EcoPartnerships program is broad — embracing a wide swathe of clean tech, and has hitherto not included a major renewable fuels project. But, if you’re wondering whether the push to get renewable fuels into the EcoPartnerships program comes from the China side or the US side — well, it generally comes from the companies themselves. To the extent that there’s been enthusiasm for renewable fuels — our understanding is that the spirit of urgency is felt more in Beijing than Washington.

Possible project areas range all over China, but it will be China. Possibly to the north, towards Mongolia, where CO2 is more readily available. Also in the south, where the growing conditions offer a longer season. There’s a lot of brackish or saline water available in China — good for Sapphire’s open pond-based Green Crude Farms.

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Upgrading to fuels will be done in a “real refinery setting”, Sapphire spokesman Tim Zenk told the Digest. I asked him whether this would involve both on-site fuel upgrading and access to onsite CO2 — he said “both”. Though he noted that the companies are obviously in discussions about implementation that will take some time to unfold.

“The mission of the EcoPartnerships initiative,” the program’s website proclaims, “is to elevate successful sub-national cooperation models to international prominence, and by doing so, to spur broad replication by their peers in the U.S. and China.

“The core of the EcoPartnerships program is the peer-to-peer collaboration that occurs at the partner level. These partners pursue innovative pilot projects that are recognized and facilitated by a Secretariat in each country. The Secretariats are overseen and funded by the U.S. and Chinese governments.  Subject matter experts with a wealth of technical and market expertise manage the day-to-day operations of the Secretariats, their engagement with the current EcoPartnerships, and others that may want to get involved.

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The Digest comments

China’s not entirely surprising as a destination — a number of algae companies have headed that way to test the waters — after all, it has not been the world leader in spirulina production for nothing. And LanzaTech has been flourishing there with its steel waste gas feedstock needs.

Knocking down a partnership with Sinopec — that’s quite another matter. Only Novozymes has done it, via a three way deal with Sinopec and COFCO that was primarily a COFCO deal, and was aimed at cellulosic ethanol but has not made much noise in recent months.

One thing is for sure, Simnopec is serious about aviation biofuels. Earlier this year,  the (Chinese) Civil Aviation Administration of China granted Sinopec Chinese Technical Standard Order Authorization (CTSOA) for aviation biofuels, certifying that the fuel has met all required industry standards. An April 2013 test flight using hydrotreated palm oil and recycled cooking oil feedstock on an Airbus 320 owned by China Eastern Airlines was the test case for the certification. Sinopec said it will now work on expanding the feedstocks it uses to produce aviation biofuel.

Another reason this makes an attractive deal: plainly, Sapphire Energy is raising a tremendous amount of money to realize its commercial-scale ambitions, and partners in these risk-heightened days are simply not going to be thrilled, now that the demonstration-scale Green Crude Farm is completed, to keep a huge engineering staff on hand. Partners like Sinopec can help fill the gap.

To right-size for the future and frankly to conserve cash and remain strong in a dollar-starved investment climate, Sapphire downsized in recent months, shedding 50 of its workforce. A lot of that was in engineering; the science team was kept largely intact. It’s a move that the Top Guns in algae are all going to have to make to raise money in this environment.

And, investor partners are going to be demanding that the company diversify the product mix, reduce the risk associated with the race for scale in fuels, and find quick winners somewhere in their IP.

Over the next months, we’ll see how companies like Sapphire respond to that challenge — though we picked up a big piece of strategy with this announce. That the company remains committed to fuels — though it’s not entirely clear how much of all that algae they propose to grow will go into the fuel upgrading unit. Companies like Sapphire with big investments from Monsanto may feel differing pressure than companies with big investments from BP.

We’ll continue to watch as the story unfolds.

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