Sapphire Energy: Growing green oil

December 11, 2012, 9:35 PM UTC
Sapphire Energy has raised $300 million for its "green crude farm."

On a 2,200-acre expanse of desert scrub in Columbus, N.M. (pop. 1,678), Sapphire Energy has built the world’s first large-scale farm to grow algae and produce crude oil. The five-year-old company has spent about $60 million constructing an array of about 70 ponds, each the size of a football field, and a refinery, which began producing oil this past summer. The first barrels are rolling out now.

Algal oil “has the potential to change the world,” says Cynthia Warner, Sapphire’s chief executive, because the process by which it is grown will allow any nation to produce oil. Warner joined Sapphire after 28 years in the oil business, most recently as head of global refining at BP (BP). She couldn’t resist the allure of algae. Productive and versatile creatures, they grow fast, don’t need to be fed, and build up oil in their cells after being exposed to sunlight and CO2. They like salty or brackish water, so ponds can be built on cheap land where not much else will grow. Into each pond go genetically engineered single-celled algae that grow to maturity in about five days, after which they are skimmed from the water and put through a thermo-chemical “wet extraction” process to separate the oil. The company plans to make about 100 barrels of oil a day in New Mexico. If all goes according to plan, commercial production of perhaps 10,000 barrels a day will begin in 2018.

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The company has raised about $300 million from venture capitalists, including Cascade Investment, which is owned by Bill Gates. Sapphire was also awarded a $50 million stimulus and a $54.4 million federal loan guarantee. Alas, no company can make algal oil at a cost that enables it to compete with conventional petroleum — yet. Green crude just isn’t as cheap as the black stuff.

This story is from the December 24, 2012 issue of Fortune.