Not ready for slime time: Algae present challenges as fuel source

As debate continues over raising the ethanol content in motor fuel to reduce emissions, another form of green energy is coloring the discussion.

And it’s not just pond scum anymore.

On Jan. 1, Congress made algae-based fuel production eligible for a $1.01-per-gallon cellulosic biofuel production federal tax credit.

Cellulosic biofuels typically are made from woody, non-food material such as grasses or wood chips, in contrast to ethanol, which competes with the food market for raw material — usually corn in the United States and sugar cane in some other countries.

But algae has another big advantage that makes it attractive to energy companies: It converts the greenhouse gas carbon dioxide into oxygen, which could be significant if the Obama administration’s measures against climate change make carbon emissions more expensive.

“The oil companies are making a long-term bet on algae,” said Will Thurmond, CEO of Emerging Markets Online, a consulting service on bioenergy.

“It is carbon negative,” he said. “They see it as a hedge against the risk if there is a carbon tax.”

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Legislation in 2007 mandated that refineries include an increasing amount of cellulosic biofuels in their products, reaching 16 billion gallons by 2022.

So far, cellulosic production has been insufficient to meet the government targets. The Environmental Protection Agency, which enforces the mandate, scaled back the 2012 target from 500 million gallons to less than 13 million gallons.

The American Petroleum Institute successfully challenged the 2012 target, arguing that even the lower level exceeded total domestic production.

But the industry continues the quest for cellulosic fuel.

Exxon Mobil Corp. invested $600 million in 2009 on algae-related research, partnering with California-based Synthetic Genomics.

Four years later, company officials say that while they know how to turn algae into oil, doing so economically at commercial scale remains elusive.

“It is harder than we had hoped,” said Exxon Mobil Senior Vice President Michael Dolan, speaking at the IHS-CeraWeek conference earlier this year in Houston.

The big challenge is extracting enough oil from an algae cell to make its production economic.

The process is hardly new: Algae and other organisms turn into oil naturally over millions of years in geologic formations.

And the water-borne single-cell creatures grow fast, making them theoretically capable of producing 30 times more energy per acre than land crops, according to the U.S. Department of Energy.

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But growing a microorganism as a commercial commodity presents daunting barriers.

“You have got to manage species competitors, predators, diseases and changes in the physical environment,” said Jerry Brand, a biology professor at the University of Texas at Austin and the director of the Culture Collection of Algae.

And making it in sufficient quantities is limited by the large volumes of water algae require.

“You look at an aquarium or a pond and they look dense, but they are relatively dilute,” Brand said, and it’s difficult to grow algae in higher concentration.

Some biotech companies have used sugar to help encourage faster growth, but that doesn’t provide an alternative to traditional ethanol raw materials.

“Using a fuel to make a fuel doesn’t make a lot of sense,” said Riggs Eckelberry, CEO of California-based Origin Oil, which has developed electromagnetic pulse technology that encourages algae to clump together.

“You can use carbon sources like wastewater and nitrates, and maybe some waste carbon, but you cannot use foods or fuels — that defeats the whole purpose.”

San Antonio-based refiner Tesoro recently announced that it plans to purchase algae-derived crude oil from Sapphire Energy, a California company that said Tesoro is its first customer. Sapphire has estimated that it will reach production of 100 barrels a day by the end of 2014.

Chevron Technology Ventures has been researching algae as one of the advanced biofuels Chevron Corp. could use to meet the mandates, along with forest-based plants, agricultural byproducts and crops grown specifically for the purpose, such as switchgrass.

“It is our goal to meet these mandates as cost effectively as we can,” said Desmond King, president of Chevron Technology Ventures. He said Chevron looks at the cost, sustainability and whether a biofuel source can be produced at a scale sufficient to meet future demand.

“In simple terms, algae is about nine dollars a gallon — three times the price of wholesale gasoline, and twice the cost of other advanced biofuels,” King said.

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King said the big constraint is the resources needed to produce even modest amounts of cellulosic fuel.

“Algae need huge areas,” he said. “To produce a million barrels of fuel, we need a pond the size of Lake Erie. “If we want to produce a million barrels a day from forest material, we would need a forest the size of New Mexico. The big challenge for these fuels is actually the biomass.”

Looking for the key, researchers have experimented with hundreds of the 100,000 or so algae strains, looking for one with the highest oil yield.

“We have had a worldwide search for the perfect algae,” Exxon Mobil’s Dolan said. “The most productive strain found came from Texas, but it is not productive or resilient enough.”

Companies harvesting algae already are using it for higher-value products, including cosmetics, plastics and bio-concrete building materials.

Those in the business say tax breaks are key for attracting investment from venture capitalists, angel investors and oil and gas companies.

And that’s where the new tax credit eligibility comes in.

“There has been a huge push for algae to get a tax credit, so that these companies can get their fuels to the market more quickly and get more confidence from investors,” said Thurmond of Emerging Markets Online. “It gives a lot of the existing companies more oxygen and cash flow — and more ability to work their way down that cost curve.”

But any tax breaks are tied to production, not research, so it still could be years before any producers actually claim significant algae-related tax breaks, said Michael Webber, deputy director of the Energy Institute at the University of Texas at Austin.

“Algae is still about 40 years away as a viable biofuel,” he said. “It’s pseudo-mature.”