No Time for Small Bets: The Decades-Long View of Sapphire Energy’s Jason Pyle
Since Sapphire Energy settled into its San Diego headquarters more than two years ago, local public appearances by CEO Jason Pyle have been about as rare as sightings of the endangered California clapper Rail. So I was eager to join the 250 or so people (and the only one with field glasses) who turned out last night for a panel discussion featuring both Pyle and Stephen Mayfield, a Sapphire co-founder, UC San Diego scientist, and director of SD-CAB, the San Diego Center for Algae Biotechnology.
Pyle told me in late 2008 that he wanted to maintain a thoughtful and serious approach at Sapphire, even as the media was going ga-ga over the prospects for algae-based biofuels. Pyle also indicated that even-handed government policies (especially vis a vis fossil fuels) would be an important factor in the success of biofuels, and it’s apparent now that Pyle has spent a fair amount of time explaining his view of the emerging technology to officials in Washington D.C.
After winning a $50 million grant and a $54 million loan guarantee from the U.S. Department of Energy at the end of 2009, Sapphire is now working on a 300-acre integrated algal biorefinery in Southern New Mexico. The Secretary of the Navy also has been supportive of the industry, setting a goal for the Navy to use biofuels and other alternative energy sources to provide half of the energy used by the Navy in 10 years.
Are such goals even feasible?
That was among the areas of discussion at last night’s event on the algae biofuels revolution, which as held at UC San Diego’s Scripps Institution of Oceanography and included Australian scientists Adelaide University’s David Lewis and Murdoch University’s Tim Morrison, and Michael Lakeman, a native New Zealander and regional director of Boeing’s biofuel strategy.
“I tend to think of success at Sapphire when we can produce 5 percent of the U.S. market, which is our goal,” Pyle says. He calculates that will require producing a million barrels a day of algal biofuels by the year 2025. Bear in mind, Pyle adds, that it required “$100 million and roughly 50,000 man-hours” for Sapphire to reach the demo stage. This was the announcement Sapphire made in May 2008 when the startup emerged from stealth mode to announce it had proven the feasibility of using algae to make “green crude,” which followed the first-ever Virgin Atlantic “green” 747 flight using algal biofuel.
Pyle says Sapphire’s next stage, which includes building the pilot plant in New Mexico and producing 1 million barrels will require an additional $105 million and two to three years. And from there, if successful, “you have to get to scale-up that is somewhat unprecedented,” Pyle says.
“Energy is not something that you can snap your fingers and get in the world,” Pyle says. “It’s not software. It’s not even biotech.”
At a time when most companies are tied intractably to meeting short-term, i.e. quarterly, expectations, Pyle has a decades-long view of the emerging technology. “A number of solutions have been brought to bear to develop liquid biofuels,” Pyle says, “but one of the trends in thinking we are starting to see is ‘What will work at massive scale?’ So we focus on solutions that offer much more broad applications.”
Compounding the problem of scaling up production is financing, Pyle says. “The issue is not whether these investments are good. The question is whether the current investment structure [with its expectations of relatively quick returns] is tolerant of the inevitable risks and mistakes” that come with producing biofuels on a massive scale. In terms of generating demand for algae-based biofuels, Pyle sees an inherent challenge in creating a scheme in which decades-long technology development can be remunerated. In other words, he says, “How do you generate sustainable, long-term incentives?” Compounding the problem, Pyle adds, is the volatility of the existing markets for crude oil, “which sends the wrong messages to financial markets.”
While such pronouncements might sound exceedingly cautious, or even pessimistic, one recurring refrain of the panel discussion is the likelihood, in the words of Boeing’s Lakeman, “of some pretty adverse outcomes down the line” if we fail to act to develop alternative fuels.
“One of the things that people have not grasped yet is that there are now 7 billion people on the planet,” Mayfield says. To feed them, we take fossil-based crude and convert it to fuel, and we use fertilizer created in the process to grow needed food crops. But prices are soaring. Mayfield says the price of crude oil recently reached $93 a barrel—and with corn at $6.31 a bushel and rising—“We simply have no choice. We simply have to solve the energy problem. We’re going to burn through our remaining fossil fuels in the next 100 years, and certainly the high-quality fossil fuels in the next 35 years. I don’t see how we’re going to feed the 7 billion people on the planet now, much less the 8 billion who will be here in five years. Now is not the time to be timid. It is no time to make small bets.”