It is good to keep up on companies and educate one's self on investments they make. Exxon Mobile is investing in a number of alternative programs to the petroleum fuel base. One of those is algae as a biofuel. Let's educate ourselves on the industry, where it is presently and what challenges it faces in 2013.
2013 Is an Important Year for Biofuel
Some think 2013 is a pivotal year for the research of biofuel. Why would they think that? Solazyme (SZYM) has researched and is using algae-based oils for chemical alternatives and personal care products. But it has the desire to churn out algae oil in such quantity that it will be able to compete with petroleum oils. The company is presently building a plant in Brazil, that is expected to turn out 100,000 metric tons a year and by 2016 300,000 metric tons a year.
But the investment costs are high while the company attempts to get to market. Solazyme lost $58.52 million for the nine months ended September 2012, up from a $38.32 million net loss for the same period a year earlier. Whenever companies move into new arenas of research it may take years before they are profitable and this is a challenge that these companies are facing.
Just like the resource sectors are having problems finding venture capitalists who are willing to pour millions in an investment that may take years to develop, the biofuel industry may face the same challenges. This does not mean that there is not a lot of promise, just that in today's global market, funding for projects that appear profitable years off is just hard to come by. So investments in this arena are not without their challenges.
Exxon Mobil Strikes a Partnership
Exxon Mobil is very interested in algae biofuels. The company has teamed with Synthetic Genomics Inc., to develop algae strains that will have significantly higher production characteristics. The company will use synthetic genomic science to research and accomplish this. This is an extension to an agreement they made four years ago but takes the next step in research. The company has worked with Exxon Mobil to help it understand and research the challenges of developing an economical algae biofuel. SGI has gained significant knowledge in algae genetics, how algae grow and has been focused on the improvement of its biomass and oil productivity.
XOM is pleased with SGI's progress. Now the company will be able to place greater research on developing strains that reproduce more quickly and have a higher portion of lipids for biofuel. The ultimate goal in this partnership is to cultivate a large-scale commercialized LG process to provide food chemicals and fuel.
Need for Alternatives and Algae is a Great Candidate
While some people say that the United States will be resource independent by 2020, others harp a different tune. There is a real concern about declining nonrenewable energy sources, and for this reason, there are some in government and private industry that are looking for alternatives to head off an impending energy crisis. Some say oil may decline over the next three to five decades.
Here is an interesting fact. While most renewable energy alternatives are focused on creating electricity, more than half of the energy consumption is derived from liquid fuels. Wouldn't it make sense to spend more time focused on how to create liquid fuels? To answer this question there has been a large focus recently on the creation of bio-fuels (biomass-derived liquid fuels). I realize we have large-scale liquid natural gas development also, but other sources like algae offer other opportunities.
Algae have gotten a lot of attention as a source of a bio-fuel. When looking at algae as a source, there are some considerations that are taken into account including: oil content, growth rate, density and survivorship. Green algae have been particularly interesting as a choice because green algae has a high growth rate and high population density. Under the right conditions, these types of algae can double biomass in 24 hours!
Not only is the oil content of algae far greater than seed crops, but it is also an aquatic species. This being the case, there is no competition for land with other agricultural products. This means facilities can be built on land not conducive for cultivating other agricultural crops. It can also be in freshwater or saltwater so it doesn't have to compete with other freshwater uses. After the oil is extracted from the algae, the left over is a high protein feed for livestock so waste reduction is extremely high also.
Challenges to Algae as a Biomass Source
The greatest challenge to looking at algae as a viable biomass source at this point would probably be economy of scale. Commercial scale production is not yet cost-effective, and the most economical method we have at this point would be the "open system."
Progress is continually being made at lowering production costs. Murdoch University in Perth, Western Australia, has lowered the production cost of oil from algae in open saline ponds to about $4 a kilo. This is a reduction from $12 a kilo but the University would like to lower that to one dollar.
As research progresses, I believe the industry will expand itself to areas outside of the petroleum fuel arena in order to start generating revenue while research continues. Other arenas include high protein animal feed or nutraceuticals, which are things like dietary supplements, or other food ingredients. As time progresses and research makes the oil extraction process more cost efficient, we will see algae used in more arenas before we see it used in a large-scale as a fuel and energy alternative.
Exxon Mobil understands the long-term investment in using algae as a biofuel alternative. It also understands that this is a long-term investment and could have revenue opportunities far beyond the biofuel industry.
The outlook for biofuel in the future looks good, but I must reiterate it is still something that will remain "in the future." Presently the cost is prohibitive and it can't currently compete with petroleum fuel because it lacks the supply of organic fuels. In order for it to be able to compete with petroleum fuels, there has to be a point where the enormity of mass translates into cheap biofuel while petroleum fuels rise because they become scarcer. This will take time, and in the meantime companies that have partnered together like XOM and SGI will be able to research techniques to cultivate algae in such a way that mass and price makes sense on a global market.