AIM Interview: Sapphire Energy's C.J. Warner and Tim Zenk
David Schwartz, Algae Industry Magazine
If it seems like there hasn’t been a lot of news lately coming from the algae industry’s largest algae-to-fuel gamble, Sapphire Energy, well, we’re happy to report that it’s not about trouble in paradise. It’s more just a lot of work being done on the inside and a lot of development work on the outside—a hundred acres worth. As for the silence, “It’s kind of like the swan swimming on the surface, looking very graceful, but with the feet going crazy under the surface. We’ve been busy scaling up!” says company President and Chairman Cynthia (C.J.) Warner, a chemical engineer who prior to joining Sapphire served as Group Vice President, Global Refining for BP, where she was instrumental in turning around BP’s US refining business.
“If you think about how much has happened over the last six months,” she says, “we built a lot more infrastructure on the ground in Las Cruces, and then did all the testing that we needed to do this summer to prepare for the final ground breaking, design, and all the construction for Columbus (Sapphire’s Integrated Algal Biorefinery, in southern New Mexico). And we’re underway now with construction at Columbus, which is essentially, even just for the first phase, a $60million project—a very large capital project that requires rigorous planning, a disciplined approach, etc. There’s just been a lot of focus specifically on what we’re doing.”
C.J. keynoted at the recent Algal Biomass Summit, attending along with Tim Zenk, Sapphire’s Vice President of Corporate Affairs, who was formerly executive vice president for the Edelman communications firm, doing international work on behalf of the Clinton/Gore administration.
The two made some time to give us an update on their progress at Sapphire Energy, truly a bellwether for the biofuel sector of the algae industry.
Has the strategy at Sapphire changed over the past couple of years?
C.J.: No. Actually we’re living the dream. We’re on track with the strategy and it’s starting to come to life before our eyes, which makes it very exciting. It just takes a lot of effort. And so our decision was to stay internally focused and deliver on what we said we were going to do, as opposed to making a lot of noise about it.
Tim: That’s always been Sapphire’s way. We try to under promise and over deliver. When we say something, it’s serious. So you’re not going to see us out there pounding our chest. It’s just not necessary.
So many of the early stage companies over this past year or two have gone through a change in strategy, seeing that fuel is more for down the road, and higher value products should come sooner. Has your strategy been affected by that kind of thinking, or are you still pursuing the original target?
C.J.: We are determined to make that step to get to fuel, and the scalability is so inherent to what we are trying to do. The model of truly being able to change the world for the better—you’ve got to achieve scale in order to do that. So we’re definitely on track with that.
I would say, though, that we are not blind to the advice that financiers might give to try and find higher revenue streams earlier on. There’s nothing wrong with that—it’s actually a good philosophy. But if you don’t keep your business model focused on where you’re trying to go, you aim off with your innovation. So, we’re staying focused on the long term, and aiming high with our innovation and our technology, and then, in the short term when we actually start producing, we’ll be able to make those high margin products as well. But we’re not going to stop there. That’s just going to help us in the short term.
Much of the work at Sapphire has been focused on crop protection. With the prospect of building hundreds, and eventually millions of acres of open ponds, how are you dealing with contamination issues? Have you worked that out?
C.J.: Well, it’s perfectly analogous to any other form of agriculture. The pests are out there, the weeds are out there, and they’re going to come. So you might as well attract them early on, figure out how to deal with them, and then just move ahead knowing that they’re there. So that’s exactly what we’ve been doing in Las Cruces with those open ponds. We’re learning how to deal with those pests. We have focused on crop protection, and we have various mechanisms for dealing with it, both from a strain selection standpoint—taking strains that are already able to cope with it, or that can be given traits that make it easier to cope with. And then we also have cultivation techniques that enable us to protect our crops.
You’re also dealing with a wide variety of climatic conditions, especially the drought. Has that affected anything?
C.J.: No, again, the climatic conditions are part of the game, so it’s better for us to get a wide variety of things earlier on so we learn how to deal with all of them. For example, we joked that this last winter was the coldest winter on record in Las Cruces that anyone could remember. It was extremely cold. It was not pleasant for the employees, but it was a real blessing because it gave us an opportunity to study something that might have taken us a long time to get to. But we got it early on when we were at small scale, as opposed to learning about it at large scale.
You also got a hurricane to deal with last year, along with the annual monsoons. So, can you manage a monoculture through the kind of weather patterns we get in New Mexico?
C.J.: Yeah, you can. You learn to anticipate it and understand it. We do a lot of testing and forecasting to see when something might be going awry, and then respond to it early enough so we can recover from it. We’ve been doing a lot of that and, actually, we are experimenting with multi-cultures. In some cases it’s naturally occurring, so a weed will show up and as long as our strain grows faster than the weed, it really doesn’t matter. We’re learning how to cope with those things.
What’s your harvest cycle going to be like when you’re fully deployed at the ponds?
C.J.: The growth rate changes with the seasons, so harvest rate changes a little bit, too. On average, once everything comes up to a constant rate of growth, we bring about a third of the pond down every day. In the coolest part of the winter that will slow down, and in the hottest part of the summer it will speed up.
You said this morning that you’ll be in full development at the Columbus, New Mexico, facility next summer.
C.J.: Next summer we’ll start Phase One of the commercial demonstration system. We’ll start to demonstrate the full integrated process and then we’ll keep growing it all the way through to 2015.
The alliances that you have announced over the past year—Monsanto, Linde—what are they bringing to the party?
C.J.: It’s fantastic. They’re both very specific partnerships in terms of what we’re doing together. With Monsanto, it’s all about collaborating with developing strains and traits, and identifying genes that really make a difference, to get the traits into the strains. Monsanto gains because anything we learn can be applied to terrestrial plants, and we gain by applying their knowledge to our aquatic plants.
There are people who have, shall we say, less than praise for Monsanto. What is your experience with them and your opinion of how they operate?
C.J.: They are the most sophisticated bio-ag company out there, and the most successful. And we’re in bio-ag. So, if there were anybody we could learn from, it would be Monsanto. And they do so much good for the world, if you think about it. They’ve increased corn yield, for example, four percent year on year for decades. They are feeding the world’s population. They’re pretty amazing with what they’ve been able to do.
Tim: And I think you just need to separate the rhetoric from the reality. The reality is that since Monsanto changed their business strategy into a bio-agricultural company they’ve done a lot of good. They have a past that was a different company, when they were in the chemicals business. I think that reputation is a hangover from those years gone by. But the truth is that they’ve done a really good job of working on their reputation and producing products that are valuable.
If you look at all the cotton grown in this country, it’s probably been assisted through a gene or two that Monsanto has improved upon in that plant. There isn’t any cotton grown in the United States pretty much that doesn’t have that BT gene in it—same with many of the new energy crops that are being created. Their corn has higher amounts of sucrose and different chemical compounds within it that make it easier for the ethanol industry to use in their processing. It’s improved that business, and the same will be true in ours, as well.
They’re collaborative and, scientifically, they are one of the most credible companies. There isn’t anyone out there that is more credible in biotechnology and energy. So for us they are a fantastic partner and, most of all, what it does for Sapphire is that it validates what we are known for, our biology and our expertise around that business. It also validates our model, which is that this is going to be agriculture. So all of those things combined roll into them being a good and very strong partner for us.
How about Linde?
C.J.: They are our partner in CO2 supply and delivery and, of course, gas supply and delivery is their core competency. We depend on it as our feedstock, but it’s not our core business, so it’s a perfect partnership because we both will benefit from the other being successful in what we are doing together.
How does that play out practically? Is it something that ties into co-location with CO2 generating facilities, or is it more around packaged CO2 delivery?
C.J.: The first major traunch of it is going to be more co-location than anything, so you look for a point source, you concentrate it, and you deliver it. You can do less concentration if you’re closer. If you are further from the source you do more concentration and longer delivery. There is kind of an optimum point that you can choose, depending on your source and where you need to deliver. And Linde’s helping us make those kinds of choices, which will help us in making early decisions for our first commercial plant. Having said that, there are a lot of interesting second and third generation options, which allow you to locate much further away from point sources.
You’ve said that waste CO2 will become it’s own valuable industry. Would you explain that a little more?
C.J.: Currently CO2 is a waste stream. As soon as we start realizing it is a source of carbon, which is useful, and we can fix it into fuels and start making valuable products out of it, we’ll realize that what was yesterday’s waste is today’s feedstock. Once we’ve done that we can start creating a paradigm shift, and that shift will bring innovation to it, and we will build a whole industry around recycling carbon – which is exactly what we want to do. We create a big cycle, and that’s sustainability.
hat from your background in gas and oil applies directly to what’s going on right now at Sapphire?
C.J.: Oh boy! I draw from it everyday – from project management and engineering construction, to troubleshooting issues out in the field, integration of different technologies, managing team dynamics and systems for determining what our performance should be and driving to it, to understanding the energy industry and what our goals should be in order to be competitive in that kind of world. All of those things come into play.
Do you see this as an industry today?
Tim: I’d say we’re close. What’s different between last year and this year, as you can clearly see at this ABS conference, is having all those vendors in there trying to sell us stuff!
C.J.: Which means, by definition, you’re a proper industry!
So what do you think is the state of the algal industry today? How would you describe it to someone?
Tim: I’d say the industry continues to defy the timeline for commercialization set by others, and more and more experts are learning that some of the timelines that we’ve been talking about since the day we launched the company are much more real than others thought them to be. We’ve become much more mature as an industry. We have the ABO becoming a real industry association with their voice and credibility helping us on the government side as an industry, rather than each company just doing one-offs in Washington.
The companies are growing up. We’ve had one of our colleagues – Solazyme – go public. We’re building a commercial demonstration facility, which is the largest in the world. A lot of good things are happening. Another way to recognize us as an industry is just the recognition we now have in Washington. People respect and know what we’re up to, and they know what our position is on energy issues.
What role do you think government should have at this stage of the industry? What do you think is realistic, what do you think it should be?
Tim: At my talk this afternoon I said that there’s never been a transition in energy that the government hasn’t led. So if the rhetoric matches up with the actions, then the government needs to continue to lead, and they need to lead a lot more aggressively. You’ve seen the latest developments with the Departments of Energy and Agriculture and the Navy with this $510million program to begin to stand up advanced biofuels. Well that’s right up our wheelhouse. And those ideas came from this industry and the government responded by saying, “Yeah, that’s a good idea. We think we can be part of that.”
The government needs to lead, and lead in ways that help us get through the tough times, which is: we need capital, we need their endorsement of our technology, we need them to understand that this space is viable, and that we are advancing quicker than other technologies. So that gets followed up with things like when we ask for changes to the RFS – technical changes that will help us grow as an industry – the Congressional arm of the government will follow suit. And when we ask for things like tax assistance – just parity – that we’ve met the important tests or threshold of credibility you have to meet as an industry before Congress hands over those types of things. And we’ve met those tests and I believe you’ll see parity happen as soon as there is a vehicle to do that.
So, I think government is there. And now it’s incumbent upon the industry to continue to be credible – under promise, over deliver. Don’t make the mistakes of the past. We’re very cogniscent of that as a group.
So, what is the toughest nut to crack in your opinion?
C.J.: Well, the great news is that all the first principles have actually been proved out. So we don’t have any lurking issue that we simply don’t know how to deal with. Now what it really is all about is scale-up. And scale-up is not a simple thing, so I don’t want to minimize that. But what we know is that it is not impossible, but it’s going to take a lot of effort, and we need to be disciplined about it and not skip steps, because when you do that you risk making costly mistakes. So the more we can make sure we are really stepping our way through it, the more we can learn at the proper level and then fix it before it’s too big, and then go to the next level. It really is about ironing out all the things that you learn each time you get a little bit bigger, and then run in an integrated fashion.
What would you say is the highest agenda item for Sapphire and for the industry?
Making oil – green ponds and black oil. Just getting it done, because it’s the proof of concept. People’s imaginations have been captured – it’s an idea that almost sells itself, because once you start thinking about it you realize how much potential it has behind it. So then it’s really about, so, is it twenty years away? Is it two years away? The more we can just get out there and get it done, and demonstrate that it really is working, that it’s there – that’s the big thing.
And the response you get from Washington is what – totally encouraging? somewhat skeptical?
It’s a funny thing because it’s almost like because we seem such a strong prospect, we’re like the orphan that hasn’t gotten the same benefits that our big brothers and sisters have gotten, and that’s a real handicap. We need a level playing field and it hasn’t happened yet. But that will make a very big difference, because if you want us to have green ponds and black oil, we can do it faster with a level playing field.
Who seems to be championing the cause in Washington?
Tim: We are really getting more and more support – Senator Tom Udall is doing a lot, so has Senator Jeff Bingaman, but there are many people helping the cause.
On the world stage, how do you see this playing out? What is the role of the U.S. in this global industry’s development?
Tim: Well, our philosophy here at Sapphire is: let’s do it in America first, and the rest of the world will take care of itself. Once we get it rolling here in the United States, we’ll move on abroad, and it’s in our national interest to do that. Everybody in this government would like to see technology spread throughout the world that we develop here on our soil.
So, how do I see it playing out? I think we are going to be successful at our IABR (Integrated Algal Biorefinery) in Columbus, and it’s going to change the way people think about algae. It’s going to support the United States’ investment in that technology in a good way, and it’s going to result in us taking this far and wide. China can’t buy its way into this technology because it’s born and bred right here by Sapphire. China can invest a lot of money, and that’s good, but at the end of the day we’re way ahead, we’re years ahead. On the other side of the coin, it’s incumbent on the United States government to recognize that we are the world’s leader in this space, and we need to do it here, and we need their support to get it done.
Does Sapphire plan to do the full expansion, or will it be licensing their technology to farmers?
C.J.: This business model is going to morph over time for sure, so what we need to do is get it launched and develop every phase of that value chain. That includes cultivation and farming. We need to launch it so that we can create a demonstration to show how it’s done. Once that happens there will be a lot of options for how to do things.
The obvious extension of it, once we know how to do it, is that there are so many farmers out there who are excited to cultivate it on their land once we’ve created the cultivation model. So, what we will do is provide seed, and then the farmers can do the cultivation. We can also provide the coop, with harvesting and extraction technology. And the refiners will continue to be the refiners and we’ll sell through to them. So that’s the most likely way the model will carry itself through. But, again, in the early days we pretty much have to occupy every element of the value chain just to get it all kick started.
Will it be industrial agriculture or traditional farming that adopts this first?
C.J.: It’s hard for me to say. My guess would be it’s going to be a mixture.
Tim: It’s a pretty patriotic business for the farmer if you think about it. So I think both industrial agriculture and those farmers who maybe have fallow rice fields might want to put some of that acreage back into production early on.
C.J.: We’ve gotten all kinds of letters of support from farmers saying, “We’re really ready to do this. Show us what we need to do and we’re there.”
They’re not put off by the complexity, or the uncertainty, or the lack of history?
C.J.: They don’t seem to be. They seem pretty thrilled with it.
Tim: If you think about modern farming, whether they’re big or small, they’re using technology. They’re all using GPS strapped to their John Deere tractors. And they’re putting seed down that’s all monitored and computer controlled. They’re monitoring the weather conditions, the fertilizing conditions, so they can reduce the amount of water and fertilizer they use. They’re a pretty sophisticated crowd.
Will this take subsidies to make them take the first step?
Tim: I think it will take the USDA Extension Service to help, because that’s how farmers understand and learn how to do this. That’s the USDA’s university, if you will. Clearly it’s going to take crop protection.
And if you want to talk about subsidies, let’s think about the subsidies already given to oil and gas. There are different models of approaching it, but energy is in our interest and we need to have a lot of it. So, if it takes a subsidy so that farmers are secure in growing it, and are protected in the event of a failure…sure, why not?
Any advice to the industry?
C.J.: I would encourage the whole algae industry to just keep at it, because we’ve made so much progress in the last couple of years. You can see it. You can feel it happening. And what we’re doing is so essential, and it needs all of our different ideas and success. It’s about keeping after it and getting to scale and getting those demonstrations going.
Tim: Amen!
