Cellana Cuts Algae Biofuel Deal with Finland Oil Giant
Algae biofuel was hot, then cold. Now it looks to be warming up again—kinda, sorta, maybe.
San Diego-based Cellana is the latest example of an aspiring algae biofuel company that has been given a chance to turn things around, after the hype of the past few years died down. The company (previously known as HR BioPetroleum) is announcing today that it has struck a multi-year, non-exclusive agreement with Finland-based Neste Oil, in which Neste has agreed to purchase large volumes of Cellana’s algae-based crude oil if Cellana can scale up.
That’s always a big “if” in the algae biofuel business, where most ideas never make it beyond the laboratory bench, but if Cellana can pull off that feat, it could end up selling $75 million to $100 million of algae crude oil for refining to Neste, says Michael Kamdar, a veteran biotech executive who was named as president of Cellana last month. Neste generated about 18 billion euros of revenue last year.
“The off-take agreement with Cellana allows us access to commercial-scale volumes of cost-competitive algae oil in the future,” said Lars Peter Lindfors, Neste Oil’s senior vice president of technology, in a statement.
“For algae-based crude oil, or advanced biofuels of any kind, we think this is an industry milestone,” said Cellana CEO Martin Sabarsky.
For Cellana, the deal represents a vote of confidence in its technology, and a lever that it hopes to use to bring in other partners and investors. Cellana has a demonstration facility on the Big Island of Hawaii, where it cultivates algae with an eye toward harvesting three kinds of products—high-priced nutritional supplements like Omega-3 fatty acids, animal feeds, and biofuels. The vision is to build a network of commercial partners who market each type of algae-based product, so that Cellana can have a diversified set of revenue streams of different products that aren’t all low-margin/high-volume products like fuel. Cellana is looking to raise about $10 million to help it scale up to fulfill the Neste agreement, and find more partners willing to buy the other products that come from its algae business. Cellana currently has about 30 people working for it, most of whom are in Hawaii, Kamdar said.
The deal also represents a potential comeback for the company, which struck a collaboration with Netherlands-based Royal Dutch Shell Group in 2007. Shell pulled out of that deal a couple years ago, as it walked away from a number of other biofuel collaborations.
But the agreement with Neste reflects a revived interest among big oil companies in the potential of using fast-growing algae as an efficient, low-cost, way of producing renewable fuels. Last month, Seattle-based Matrix Genetics struck a significant research partnership with an unnamed international oil company that was big enough to entice a prominent scientist—Jim Roberts of the Fred Hutchinson Cancer Research Center—to join the startup full-time and recruit 20 new scientific staff. In March, San Diego’s Sapphire Energy said it would supply “green crude” oil produced from algae at its pilot plant in New Mexico to Tesoro, (NYSE: TSO), the independent oil company based in San Antonio, TX.
San Diego-based Synthetic Genomics, the venture headed by J. Craig Venter, also crafted a new collaboration with Exxon Mobil last month to work on developing new algae strains that might someday produce oil for fuel.
Cellana’s technology is a little different than some others, in that it seeks to grow algae in open ponds, while using some industrial techniques to combat the threat of contamination in those ponds, Sabarsky said. The process is designed to be modular, meaning it ought to be easily transferred to locations other than the company’s demonstration facility in Hawaii, he said.
What’s interesting to note is how expectations have been tempered since the boomlet of 2008-2010, when companies like Sapphire Energy, South San Francisco-based Solazyme and others made a lot of news, and raised a lot of money, around bold visions for creating alternative fuels. In 2009, Synthetic Genomics struck a much-hyped algae biofuel deal with Exxon Mobil that was potentially worth $600 million. By early 2013, technical challenges emerged, and Exxon CEO Rex Tillerson said on PBS’ “Charlie Rose” show that algae-based biofuel was still probably 25 years away from becoming reality. Although Exxon struck a new basic research collaboration with Synthetic Genomics last month, terms of the new deal weren’t undisclosed.