The Bloom Is Still Off (NPK-Dependent, Non-Sustainable, Non-Economically Viable) Algae Biofuels

Includes: TVIAQ, XOM
by: Durwood Dugger

Algae biofuel has little, if any, potential to significantly offset the global energy demand and growing energy deficit.

At-scale commercial algae biofuel is still dependent on petroleum and NPK (nitrogen, phosphorus, potassium) fertilizers. All are petroleum dependent and, as such, are finite critical resources.

The petrochemicals used to produce and process NPK fertilizers and other modern food crop management chemicals are economy-of-scale-sensitive to the scales of the petroleum and petrochemical industries.

Algae biofuel production still competes economically for depleting finite critical resources with global food production, potentially negatively impacting global food costs.

Since 2015, when petroleum fuel prices declined significantly, most algae biofuel companies have disappeared or converted to other, higher-value algae products like cosmetics and/or human and animal food oil products.

My background

As a long-time (five decades) commercial algae producer (non-biofuel), in 2013, I wrote an article titled, "The Bloom Is Off (NPK-Produced) Algae Biofuel Development" for Seeking Alpha. In the article, I summarized the current status of algae biofuels and their lack of both long-term sustainability and economic viability. I believe my commercial algae production, technical and food production economics background gives me a far less biased viewpoint on algae biofuel (I'm not promoting or selling anything herein) with which to view the potential of algae biofuels - at least much less biased than those who continue to promote algae biofuel development despite its proven non-sustainability and non-competitive economics (both fiscal and physical). Bottom line: If there were real potential in at-scale algae biofuel production, I would be doing it. I'm not.

That said, I believe that algae does have a role in converting wastes to useful products. In line with this viewpoint, I was asked to be an advisor to NASA's OMEGA (Offshore Membrane Enclosure for Growing Algae), a sewage waste water to algae biofuel project. The OMEGA algae biofuel research project was funded by Google, CEC PIER Grant, and NASA ARMD from 2009-12. I was also an invited speaker at the 2010 American Institute of Aeronautics and Astronautics and gave a talk regarding my views on the limited potential of NPK (nitrogen, phosphorus, potassium) produced algae biofuel to supply significant and sustainable amounts of feed stocks for aviation fuels (military and commercial jet fuels).

I've continued as an advisor to the OMEGA project in its current form, called The OMEGA Global Initiative (the OMEGA Advisors are listed here; I'm the guy in the yellow polo shirt). I believe that using algae to recycle nutrients from sewage is sustainable, necessary and worthwhile - even if only as an energy offset and not a significant contributor to global energy demand.

In 2011, my company - BioCepts International, Inc. - began the development of more cost-effective ways to use alga's sunlight to chemical energy conversion capacity more directly. We focused on using algae strategically and economically in aquaculture water treatment to recover and recycle waste feed nutrients as a nutrient/energy vehicle for a multi-trophic aquaculture technology that we call ISRAS (Integrates Species Recirculating Aquaculture Systems).

The ISRAS concept uses algae not to produce combustible biofuels but to convert feed wastes (up to 85% of the aquaculture feed typically does not end up as the harvested product) and other aquaculture metabolites into algae. This aquaculture waste produced algae not only cleans the aquaculture production system environment, but it can also be used as a feed to grow lower trophic, filter feeding, high value species as additional income streams.

The ISRAS concept reduces or eliminates much of the waste treatment and waste disposal costs typical in most commercial RAS (recirculating aquaculture system) food production systems, and might have the additional economic potential to produce significant secondary high value aquaculture species products as an additional side income to the enterprise. While much of the ISRAS technologies are "off the shelf," the economic optimization (vertical integration) and optimized scales of how those technologies are put together are key.

The point is that while ISRAS isn't an algae biofuel technology, it is an algae bio-energy project wherein fossil fuel energy inputs are offset by reducing or eliminating the costs of waste management and providing additional food production - all from existing "sunk energy costs" in aquaculture feeds. ISRAS has high initial capital thresholds and is still a development-stage technology.

Recent algae biofuel production technology, sustainability and economic changes

So, what's changed in algae biofuel development since 2013 when I wrote my last article on algae biofuels? Perhaps more importantly, what can really change while staying within the boundaries of the laws of physics, chemistry and biology to make algae biofuel and biofuels in general competitive with fossil fuels, sustainable and non-competitive (fiscally and physically) with human food production?

The answer is relatively simple. What has changed is almost nothing to support the logical continued economic development of algae biofuel. In fact, the economics of algae biofuels have gone from "bad" to "worse" - when petroleum prices almost halved starting in 2015 and have stayed down. There have been a multitude of early 2000-12 algae biofuel startups that have gone broke, many of which are on this out-of-date Wikipedia list from 2013 of algal fuel producers. This follows a development pattern similar to the present, and not dissimilar to earlier algae biofuel research predecessors that came and went in the 1940s and again in the 1970s. That's when their economic competitiveness/feasibility was destroyed by lower cost fossil fuel pricing. It might come as a surprise to many that algae biofuel technology is not new, but rather an old technological dream.

Today, algae biofuel companies that have not gone broke have changed their primary algae biofuel development focus to other algae-related products. Some biofuel survivors have become algae-based food producers, producing algae-based omega-3 oils, proteins and pigments for both human foods and animal feeds (fish oil replacements).

To understand how badly the algae biofuel bubble has burst, I recommend Eric Wesoff's article titled, "Hard Lessons From the Great Algae Biofuel Bubble." This article should give you an understanding of just how many algae biofuel companies have failed. It also includes a list of the statuses of major algae biofuel players today.

Critical algae biofuel limitations that haven't changed

Groups like the National Academies of Sciences and its associated National Research Council have not changed their 2012 published conclusion that algae biofuels are not sustainable. This is because in 2017, at-scale biofuel production is still NPK dependent. And NPK production is still economically dependent on the transportation-petroleum industry, as well tied to similar current economies of scale.

Consider that a global algae biofuel industry's NPK demand for algae biofuel production would still dwarf human food NPK demand by a factor of more than four times. Rock phosphates used in NPK production are still a primary critical finite resource bottleneck, and a source of geopolitical conflict for human food production as well as a threat to the human population's continued growth - and perhaps even its continued existence. This situation isn't expected to change for the foreseeable future - if not forever - at least on this planet.

Algae biofuel company postmortems

While each algae biofuel company failure has its own story (and even a few criminal fraud investigations), invariably the basics of their failures are the same - impossible economics. In the short term, it's impossible economics, and non-sustainability in the long term. Economically their failures include, but are not limited to, the following:

  • Algae biofuel companies failed to produce the yields of oils they projected.
  • They failed to scale and produce the amounts of product necessary to achieve optimum production economies of scale.
  • This meant the cost of algae biofuels never became low enough to be even close to competing with fossil fuels. Many algae biofuel companies goals were competing with retail fuel prices, failing to realize that wholesale fuel costs were far below retail.
  • More importantly, in algae biofuel forays over the past century algae biofuel producers failed to realize the degree of production and market plasticities of fossil fuels and their ability to lower their pricing. Like most of us, they succumbed to the petroleum industries multi-decade crisis marketing strategies of projected petroleum scarcity and the dreaded "peak oil."
  • Algae biofuel developers have also been deniers of the economic impacts of new petroleum production technologies that started in 2014 to flood the petroleum markets and make lower-priced petroleum.

There have been a few examinations of why specific algae biofuel companies failed. However, most algae biofuel postmortems fail to mention algae biofuels' lack of sustainability due to their competition with human food production resources. Because algae biofuel economics have been so bad, lack of sustainability for at-scale, NPK dependent biofuel production isn't likely to be a problem. For those still interested in the algae biofuel story, these algae biofuel company postmortems (often more like eulogies) might be worth reading:

  • A short postmortem analysis of Algenol's demise.
  • Another postmortem of sorts on Aurora Biofuels can be found here.
  • Despite consistently being on the Biofuels Digest list of the hottest 50 companies since 2008, Sapphire Energy ceased operations in January 2017. Sapphire's untimely demise has caught algae biofuel proponents by surprise. As such, you'll see non-current references to them on Wikipedia and/or the clearly over-optimistic January 2017 IEA State of Technology Review – Algae Bioenergy, which doesn't reflect the fact that they went out of business. You can find a brief history of Sapphire Energy's recent and expensive demise here.

The big switcheroo: algae biofuel developers move to algae foods and algae derived chemicals

Algae feedstock chemicals

With alternative energy portfolios of failed algae biofuel investments, some early algae biofuel investors such as Bill Gates have switched their investment strategies and interests to recycling. That is, using algae to convert wastes into basic chemicals and nutrients using energy intensive and complicated processes.

One of Gates' companies, Renmatix, has developed a process that converts plant waste and biomass into cellullosic sugars that can be converted into biofuels and/or a host of biochemicals. Their technology, called "supercritical hydrolysis," uses high-temperature and high-pressure water to break down plant wastes, like wood chips (which are already used directly as fuel commercially), into sugars (sucrose sugar is a global commodity product and prices are so low that the U.S. government subsidizes the U.S. sugar industry to keep it economically viable) that can be used for fuels or chemicals.

Clearly, Remantix's "supercritical hydrolysis" technology is a high-energy use technology, and it isn't at all clear how competitively limiting this high energy use/cost will be on the range of products it can economically produce - even from plant wastes. There have been a number of failures in cellulosic biofuel companies and the chemical arena, which tends to create a dubious atmosphere around new entrants. Furthermore, the company doesn't plan to actually use their technology, but rather to license it to others.

I bring up Remantix because clearly they thought initially that their cellulosic sugars would be largely sold to algae biofuel producers. While most algae biofuel developers pursued photosynthesis-based (photoautotrophic) lipid production, algae can use sugar directly (heterotrophically) to produce lipids sans photosynthesis. Two of the biggest players have now left the hetertrophic algae biofuel field - Alltech and Solarzyme (see details below). My point is that heterotrophic algae biofuel producers will not likely be customers for Remantix's cellulosic sugars, nor will they be one of Renmatix's technology licensees. How impactful the the demise of the hetrotrophic algae biofuel will be on Remantix, if at all, is unknown.

Algae food oils, proteins, and pigments

Alltech, an animal nutrition company founded in 1980, apparently saw the algae biofuel economic writing on the wall. While leaving the heterotrophic algae biofuel arena, it remained as hetrotrophic algae food (omega-3 DHA oils) and chemical product producers. As mentioned above, commodity sucrose is likely cheaper to buy than cellulosic-derived sugars.

Solazyme, which has changed its name to TerraVia (TVIA), has also left the heterotrophic algae biofuel arena. Sapphire and Solazyme's less-than-profitable algae biofuel experience using sugar probably means that any surviving algae biofuel heterotrophic biofuel producers will not be one of Renmatix's technology licensees.

The shift from algae biofuels to algae oil food products

While algae can be used to provide a wide range of products (oils, proteins, and pigments), very few of the production processes for these products has been shown to have competitive economics with current traditional production methods. Given algae biofuels competition with food production resources, the most obvious solution to this problem was to move from algae fuels to algae food products.

Formerly publicly traded algae biofuel companies like Solazyme (now TerraVia, whose stock price is down from $25+ in 2011 to $0.22 today and down 90% for the year after losing millions of investor dollars) are reportedly making some inroads into the algae oil for human food markets. However, large profits have yet to be seen. High-end algae-based nutrition products might have high margins, but they have comparatively low volumes - especially when compared to algae biofuel projected volumes. However, there is a middle ground between high-end human algae food products and algae biofuel market volumes. For instance, using algae oil to replace the oil from declining commercial fish stocks in animal feeds.

Using algae to produce food products such as omega-3 fish oil replacements is a good thing, since we are also running out of global wild fish stocks both for human consumption and for animal feed needs - particularly in fish and shrimp farming. The algae oil replacement of fish oil opportunity is probably the closest to significant profitability. Algae-based fish oil replacements have the largest dollar volume potential next to algae biofuels. From a finite critical resource perspective, algae food oils (human or animals) might have the single highest and best use of all potential algae oil products - certainly when compared to algae biofuels and/or other algae non-food products.

However, consider that in order to succeed in commodity food product markets, such as fish oil replacements, you need to have optimum economies of scale to optimize production costs, and be able to operate on typical commodity product sales margins. This requires the financial ability to overcome very large capital threshold investments in algae oil production technologies.

In reality, the big winners if and when algae oils economically replace fish oils will most likely be the big feed companies, which have always excelled at "farming the farmers." Meaning that savings from expensive and limited fish oil purchases are most likely to go to the big feed companies' bottom lines, rather than the algae oil producers/farmers. For more information and a list of the major players in the algae oil animal (aquaculture) feeds market, click here.

The poorly understood and complex economics of algae biofuels

"We just need a technological break through." Competition with other fuel sources, scaling limitations, petroleum industry dependencies and the algae biofuel catch-22 are just a few of the reason algae biofuel economics have not worked.

Technology vs. economics

Numerous so-called "breakthroughs" consisting of new algae species, hybrid or GMO (genetically modified organism) algae species with higher lipid yields, etc., have repeatedly failed to significantly lower the basic economics of algae biofuel production process costs, or significantly change algae biofuel's EROI (energy return on investment). How do I know these "breakthroughs" haven't changed basic algae biofuel economics? The same way you do. Clearly, if algae biofuels had reached economic viability, we would see algae biofuel in every filling station.

This lack of economic viability is primarily due to the fact that most of the costs associated with finished algae biofuel production are post-growout. Meaning that even with higher numbers of algae cells per growout volume, and/or even with increased lipid yields, costs stay relatively proportional because increased volumes of product also mean increased post-growout processing costs (harvesting, algae cell disruptions, lipid separation, lipid drying, lipid fuel stabilization, and storage and distribution) per unit volume produced. Of course, now that petroleum prices are at their lowest point in more than a decade, this in no way helps the already demonstrably poor algae biofuel EROI and/or the non-viable economics support continued algae biofuel development. Obviously, quite the opposite is true.

Competition with other fuels

The advent of new petroleum production technologies that have begun serious international scaling and that have been impacting the petroleum markets, starting in 2015, are essentially doubling 2009 estimated global petroleum reserves by making formerly uneconomic reserves now economically available to these new technologies. New oil production technologies are taking petroleum reservoir pumping efficiency from the pre-2014 level of about 30% to almost 60% or more in some cases. It's estimated that between 100 and 135 billion tonnes (which equals between 133 and 180 billions m³ of oil) of the world's oil reserves have been used between 1850 and 2009. With new oil production technologies (primarily horizontal drilling, multi-head wells, and fracking of both new and existing oil wells), oil companies could unlock another 140 billion barrels of new global oil supplies.

The new petroleum oil production technologies and the resulting glut of oil in the market place (a glut that some economic forecasters say might last for a decade) make it nearly impossible for any alternative transportation energy sources, like algae biofuel, to be competitive with fossil fuels in the near term. This "rose colored glasses" review of mid-2015 algae biofuel companies would be almost changed overnight as cheaper petroleum prices extended the profit horizons for algae biofuels beyond the investment horizons.

It's not just algae biofuel's future that's in doubt

In 2017, even the formerly rapidly growing electric vehicle (EV) markets, though higher year over year, are feeling the impacts of low petroleum prices. June 2017 had the lowest amount of EV sales growth this year, which has actually been flat to declining since March. Given the current Trump administration's focus on a return to fossil fuels like coal, no one really knows where alternative energy development is headed.

Of course, the new petroleum oil production technologies will only provide less than a 30-year extension of still finite global petroleum resources and their respective depletion economics. That's 30 years too far into the future to have any impact on most of today's critical finite resources for uninformed, short-sighted government planners, and/or investment analysts.

Companies like Exxon (XOM) offer an illusion of algae biofuel potential with their regular algae biofuel PR streams like this one, when in fact Exxon is simply creating broader markets for their petroleum and petrochemical businesses through greater NPK and petrochemical production/demand through NPK processing petrochemicals. They clearly know that petroleum energy economics are more difficult today for alternative energy to compete with than almost ever before. You should also note there are no algae biofuel production economics being released by XOM or other current algae biofuel promoters in their 2017 PR.

Scaling limitations and petroleum dependencies

While the world literally holds its breath (and often its nose) waiting for a replacement to petroleum energy - and its toxic pollution and climate altering CO2 - few people really understand that the petrochemical industry (5% of petroleum production) shares exploration, drilling, storage, refining and distribution costs with the larger petroleum transportation industry. They have yet to think about what the diminishing economies of scale and other economic implications and impacts of doing away with the transportation and energy side of the petroleum industry will do to other petroleum dependent industries, starting with petrochemicals. The economic impacts on the critical petrochemical-dependent products like fertilizers, pesticides and other food crop management chemicals, medicines, plastics, paints, etc., could be substantial. A petrochemical industry faced with having to find, source, produce, store and transport its own petroleum feed stocks is likely to have very different economics - cost structures and product pricing - than what our current petrochemical industry can offer today's critical commodity producers.

Frankly, algae and biofuels in general just don't make logical (not sustainable), technical, economic or scientific sense. In order for algae and terrestrial biofuels to have a significant impact on global energy demands, they first have to lose their petroleum industry/NPK industry dependence and eliminate their competition for NPK with food crops. These are no small feats - if not absolutely impossible. For any of these "feats" to happen, it would first mean the advent of another even less expensive source of global energy - a much less expensive source of energy than we currently have. This new energy technology must now suddenly appear and rapidly come forward to a global scaled commercial reality and replace fossil energy completely.

For the sake of this discussion, we could propose something like fusion as a possible cheap new energy source, just for example. This assumes that Lockheed Martin's (LMT) compact (high beta) fusion reactors might become feasible soon - which is a big assumption - based on a steadily declining PR flow from the fusion project in the last few years. I use fusion energy as an example because the necessary energy has to be cheap and abundant enough to not only satisfy the global energy deficits but also to offset the increased costs of non-transportation petroleum industry cost-sharing with the petrochemical industry (as mentioned above) for NPK production and other food crop management chemicals costs not to sky rocket.

Fusion economics would also have to assume that fusion energy is cheap enough to make at scale phosphorus recycling (a feat that has evaded economic viability and commercialization for nearly a century), and/or phosphorous extraction from currently non-economically viable (lower grade with higher contaminates - rock phosphate) sources and that are economically viable and abundant enough for our current cheap food production to continue, essentially forever. Consider that the recycling of phosphorus at global commodity food production scales has never been demonstrated to be either economically viable or satisfactory in potential and/or the necessary volumes to support global food production even fractionally. Yes, some companies now make expensive retail ornamental plant food with recycled phosphorus, but currently there are no agricultural fertilizer commodity scale phosphorus recycling technologies and/or non-subsidized commercial facilities existent or producing competitive commodity scale priced agricultural phosphorus fertilizer anywhere.

Consequently, we are essentially saying there would need to be a major energy and phosphorus commodity resource - technical and economic - paradigm shift for algae biofuel to ever become even partially a long-term sustainable and economic energy solution. Not only is this improbable given current global technical slowdowns caused by reduced R&D spending in these areas, it is improbable given the current 30-year window of opportunity that many critical resource scientists are projecting before we run out of economic petroleum and rock phosphate phosphorus resources - and, worse, running out of both more or less simultaneously.

Algae biofuel's catch-22

Do you see where this circular, non-logical and ultimately self-contradictory pathway is taking us regarding algae biofuel's sustainability and economic viability? If we have abundant fusion energy (or some other sustainable and much cheaper energy - way cheaper than fossil fuels) that we would absolutely need to make algae biofuel sustainable and economically feasible, why would we struggle to make algae or other biofuels for energy? We would already get that energy from fusion or whatever. Why would we produce NPK dependent biofuels and or use declining food production resources to make energy? In a critical finite resource depleted world, it's always a matter of considering critical priorities, and food has a higher priority than energy.

All of the above are the pragmatic realizations that continue to contradict algae biofuel development's logic and the efforts of its promoters. Algae biofuel is unsustainable and/or non-economically viable. For at-scale algae or other biofuel potentials that depend on finite critical resources, there really isn't any foreseeable potential.

A sustainable energy future is only part of the solution to sustainability

In 2017, from everything I read and see, commercial algae biofuel production efforts are still the poster child for the differences between having technical feasibility and having no real economic (or sustainable) feasibility.

There are two primary scenarios for the human finite critical resource future: One, we will run out of petroleum and rock phosphate in the next 30 years or so and have global food resource shortage chaos. This level of chaos will take recent global human population growth, and our food animals (that are now multiple times the human biomass on the planet) with their finite critical resource depletion rates, back to the sustainable levels where they were before the First Industrial Revolution (under the natural phosphorus cycle and before NPK) of well under two billion people.

Two, we will find a new sustainable and comparatively very cheap energy source. Necessarily, this new sustainable energy source will release us from our current petroleum/fossil fuel economy dependence as well allow us to recycle and or process phosphorus and other critical finite resources more economically. It may or may not improve the negative anthropogenic impacts of gross human overpopulation on the planet's life support ecosystems.

Unfortunately, having abundant and sustainable cheap energy and recycled phosphorus for food production won't solve our perpetual growth economy dilemma. Humans will continue to grossly overpopulate our finite critical resource depleted world. That's because that is the only way our current economic engine can work.

We will likely not have learned our sustainability and finite critical resource limitation lessons. We will likely respond to increased energy and phosphorus resource availability by only continuing to produce more food and more humans - and new population collapse bottlenecks - creating spatial, water, climate, and or other critical biosphere imbalances until our critical planetary ecosystem sustainability balances (planet life support systems) collapse. At that point, the planet will begin to rebalance its ecosystems - probably with a lot fewer humans, or perhaps no humans at all.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.