Tesoro Is First Customer for Sapphire’s Algae-Derived Crude Oil

Sapphire Energy Inc., a Bill Gates- backed producer of crude oil from algae, said Tesoro Corp. (TSO) is its first customer.

Tesoro, the largest independent refiner on the U.S. West Coast, is purchasing an undisclosed amount of the oil produced at its demonstration plant in Columbus, New Mexico, closely held Sapphire said today in a statement. The agreement is “the first step of a commercial relationship” to process oil from planned commercial-scale facilities, the San Diego-based company said.

The demonstration plant was funded in part by a $50 million U.S. Energy Department grant and a $54.4 million loan guarantee from the Department of Agriculture. It’s expected to produce as much as 100 barrels a day by the end of 2014.

Sapphire’s algae is produced from sunlight and carbon- dioxide and grown in open ponds with non-potable, non-fresh water, according to the company’s website.

The $135 million plant currently has 100 acres of “cultivation capacity” and is continuously producing 2 barrels a day, Tim Zenk, a Sapphire spokesman, said today by telephone. Tesoro has agreed “to take as much as we can produce,” and the plant will encompass 300 acres and produce 100 barrels a day at full capacity, he said. He wouldn’t disclose the purchase price.

The companies are working together to obtain certification of transportation fuels refined from the oil for on-road use. That approval from the U.S. Environmental Protection Agency may be received within six months, Zenk said.

Tesoro in the interim plans to sell algae-derived diesel fuel it makes for off-road use, including for construction gear, farming equipment and generators, he said.

To contact the reporter on this story: Andrew Herndon in San Francisco at aherndon2@bloomberg.net

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net

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