Are Biofuels Ready to Break Out?

In a world where Americans are staring at $5 gallons of gasoline and significant oil reserves are tied up in warring nations, economists are hedging their bets on whether or not the American economy can withstand another rise in energy prices. One company is investing heavily in the idea that it can — literally — grow its own oil. ExxonMobil XOM pledged $600 million in 2009 to research algae-based biofuels, partnering with Synthetic Genomics to develop biofuel products. July 2010 marked the first major milestone for the group, as they opened a new greenhouse facility for research and testing in La Jolla, California. The facility tests different growth systems for the algae, as well as research into algae fuel production, harvesting, and bio-oil recovery. Thus far, engineers working at the facilty have made progress in three areas of algae fuels: First, they have isolated and/or engineered a large number of candidate algal strains and found growth conditions under which these strains could be made more productive. Second, they have identified and tested some of the preferred design characteristics of the different production systems. Third, they have initiated life cycle and sustainability studies to assess the impact of each step in the process on greenhouse gas emissions, land use and water use. This summer, the plan is to open an outdoor test facility. Algae themselves have several unique advantages as a potential fuel source. For example, they can be grown on land and water that is unsuitable for plant or food production. Production of algae soaks up carbon dioxide, potentially leading to a global warming remedy. Algae fuels also produce oil that is nearly identical to current fuels, so refineries should be able to adapt to their use quickly. They also have the potential to yield 2000 gallons of fuel per acre, eight times more than what corn-based fuels can yield. For investors, the question is two-fold. First, can algae become a large-scale source of energy? And second, if so, at what price point does it become economically viable? The science around the first question suggests yes, it can be a large-scale source of energy. The U.S. Department of Energy estimates that it would only take 15,000 square miles, or less than one half of one percent of the map of the United States, to replace all the petroleum used in the United States. As for the second point about prices, part of that is mitigated with government investments. "(Algae fuel) is feasible; it's just a question of cost, because no large-scale facilities have been built yet," said Matt Caspari, chief executive of Aurora Biofuels. For now, it's something for investors to consider as they sit at the gas pump and wonder when relief from high prices might come.