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Algae fuel is going uptown.

Chevron, the honkin' big oil company, and the National Renewable Energy Labs have announced they will collaborate on identifying and developing strains of algae for fuel. Potentially, the research could result in jet fuel that uses algae as a feedstock.

The collaboration is part of a five-year deal, kicked off in 2006. The two are already cooperating on research for bio-oil reforming, which involves taking bio-oils and turning them into hydrogen and other oils.

In the past few years, a number of start-ups such as LiveFuels, Solazyme, and GreenFuel Technologies have come up with plans to turn algae into a basis for biodiesel or a synthetic form of petroleum. Some of the companies want to genetically manipulate the algae, while others will use natural strains of algae. GreenFuel, meanwhile, will put its algae-growing ponds near electric power plants so that the microorganisms can take carbon dioxide out of the atmosphere and cut down greenhouse gases.

Chevron will work with start-ups too. The idea is that start-ups will incubate ideas and Chevron will try to commercialize the promising ones, said Don Paul, Chevron's retiring CTO, in a speech earlier this month. Start-ups will have a tough path if they want to commercialize fuel themselves. Building a full-fledged commercial-scale fuel plant takes about $3 billion and takes more than a decade, Paul noted. A prototype plant--a facility that can crank out 1,000 barrels of oil a day, a drop in the bucket in the world's 85 million barrel a day diet--costs around $300 million

Algae is an incredibly oily microbe--some species are nearly 50 percent lipid. Algae also grows fast so a hectare can produce 15,000 to 80,000 liters of oil a year, far more than most other oily plants. It also has almost no other value, unlike corn.

So the catch? It's not easy to convert into fuel. Separating water from algae has been one of the big problems. It's not uncommon to have 1 gram of usable algae in every liter of water, according to John Sheehan, vice president of sustainability at LiveFuels. "That's 1,000 parts of water for every part of algae," he said in an interview earlier this year.

Cost is also a problem and it's unclear at this point when or if algae fuel will compete with fossil fuels. Sheehan knows of what he speaks. He oversaw some of the early algae fuel projects at NREL. A lot of the start-ups rely on research from the national labs.

If anything, fuel is clearly running out. We've used up about 1.1 trillion barrels of the traditional sources of oil on the planet, said Paul. By 2012, we will have used 1.5 trillion barrels and not everything down below can be extracted. Thus, there is an opportunity for alternatives.

Pure Biofuels has raised $30 million to open a biofuel refinery in South America and raise its own crops.

The company wants to build a plant capable of processing 52.5 million gallons of fuel a year in Peru. It has already bought a small refinery on the continent, so by mid-2008, it will have the capacity to produce 62.5 million gallons a year out of these two plants.

Rather than buy oil on the open market, it will grow its own. The company has secured 60,000 hectares in central Peru that will be capable of providing the feedstock for the operation. Pure will harvest canola, jatropha and palm oils.

"Japtropha has the highest yield (of oil per acre) after algae, but algae is still in pilot," said Pure president Steve Magami in an interview.

Right now, Pure doesn?t know how much of each crop it will grow or which ones will grow optimally on its land. It will study the issue in the near future.

By owning its own plantation, Pure insulates itself from commodity price fluctuations, which have made life difficult for other biodiesel producers. "Most people are building (refining) capacity, but feedstock is 80 percent of your cost," he said.

Labor and land, meanwhile, are comparatively inexpensive in South America.

The output from these first two factories will be sold almost exclusively in Peru. Peru does not have a subsidy program. However, diesel fuel is somewhat expensive. Magami says that it can produce fuel and sell it for less than conventional diesel. That won't be easy. In the U.S. biodiesel providers need a subsidy of 50 cents to $1 a gallon to stay competitive. (The level of the subsidy depends on the type of oil used to make biodiesel.)

Later, the company hopes to open plants and refineries in Argentina. Imperium Renewables, which just opened a 100 million gallon a year facility in Washington state also hopes to open a plant in Argentina.

The $30 million raised is not venture funding. It consists of a $10 million convertible note and a $20 million secured credit facility. That sort of thing is going to be more common in the green biz. Many of the fuel and coal projects are more suited for standard credit financing than venture funding, according to many VCs.

(Credit: USDA)

When a new biodiesel plant opens early next year in Odessa, WA, it will employ a novel strategy: take locally grown seeds, crush them on site, and refine the resulting oil for fuel. It might sound obvious, but, according to plant manufacturers, the Odessa facility will be the first of its kind in the Western U.S. to fully integrate these steps necessary for biodiesel production.

The result? The facility, according to equipment suppliers, will be less vulnerable to fluctuating agricultural oil prices, which could help stabilize fuel prices further down the supply chain. For the community, it will give Washington wheat farmers an alternative rotation crop, which is beneficial both economically and environmentally.

Turning oilseed into biodiesel is a three-stage process. First, the seeds are crushed. In the case of canola seed, the crushing produces two substances: crude oil and canola meal. The oil is refined and filtered, while the meal can be used as livestock feed. In the third stage, the filtered oil goes into a reactor and mixed with methanol or ethanol and processed. About 90 percent of oil is turned into biodiesel; the leftover byproduct is glycerin.

A Washington state law mandates that all petroleum diesel contain 2 percent biodiesel by 2008. To meet the requirement for that state alone, at least 20 million gallons of biodiesel must be produced by next year. The Odessa plant will initially produce about eight million gallons annually, with an estimated future production of about 16 million gallons a year.

The automotive industry still seems divided on the benefits of using biodiesel in cars. According to Wikipedia, car owners in the UK may void their engine warranties if they use fuel that contains more than five percent biodiesel. But many automakers say the alternative fuel reduces engine wear, since biodiesel is a better solvent than petroleum diesel and helps keeps fuel lines clean. The downside is, deposits cleaned from the lines may cause blockages in fuel injectors. But that can be solved by changing the fuel filter every few months -- something many of us do at regular oil services anyway.

Making fuel out of algae is one of those ideas that everyone loves. An acre of algae can produce 50 times more oil than an acre of soy, estimates John Sheehan, now vice president of strategy and sustainable development at LiveFuels.

"It can produce a lot of oil," he said in an interview on Wednesday.

The oil can be used to make biodiesel or synthetic forms of petroleum or both. Many hope that algae-based fuel can sell for around $40 to $50 a barrel, or a lot less than crude.

Algae facilities can also suck significant amounts of carbon dioxide out of the atmosphere. The fumes coming out of utility smokestacks can be piped into algae growing facilities. And to top it off, algae's not a massive food crop at the moment, so you aren't using a valuable food crop to gas cars.

Sheehan's not new to the field. He oversaw biomass, ethanol and algae programs at National Renewable Energy Labs. An NREL paper on algae--along with research from some of the national labs--forms the basis of a lot of the thinking around algae.

Right now, though, no one is producing it commercially. Companies such as LiveFuels, GreenFuel Technologies and Solazyme hope to start seeing algae oil get into the fuel markets in a substantial way over the next few years, but it's still mostly experimental. GreenFuel recently hit some snags and changed CEOs.

One challenge is removing the water. It's not uncommon to have 1 gram of usable algae in every liter of water. "That's 1,000 parts of water for every part of algae," he said.

The industry is also in the midst of a few religious wars. One is controlled versus open ponds. In controlled facilities, engineers can regulate the growth of organisms and control what kinds of species grow in the environment. These facilities cost quite a bit. Controlling the rate of growth can also be a problem.

"Open ponds are the cheapest, simplest solution," he said. "But it is much harder to maintain consistency."

Then there is the question of using biologically enhanced organisms or a mixture of naturally occurring species. Enhanced organisms can produce more oil per cell. However, they may not thrive if foreign species enter the pond.

LiveFuels is an open pond/multispecies company, by the way.

"The issue is: is it doable?" he said. "The question is: can we get the costs down to where it can compete" with fossil fuels?

The oil industry is swimming in revenue. Sales for the member states of OPEC hit $649 billion last year, a 22 percent increase. Oil also hit a recent (but not an all-time) high of $78.81 a barrel.

But it's also getting more expensive to find new sources of oil and extract it. (The industry is also facing a hiring crunch.)

The Wall Street Journal (subscription required) tallied some stats in an article earlier this week culling data from various sources. Here are some of the more interesting ones:

Cambridge Energy Research Associates says the capital costs for extracting oil have gone up 80% since 2000. The price of crude, meanwhile, has about doubled. Thus, revenue is going up but expenses are keeping pace.

The production cost of a barrel of oil have risen from $5 in 2001 to $20.40 last year, according to Lehman Brother. The firm said the cost should rise $5 to $10 a year for several years.

Drilling projects in Kazakhstan and the Sakhalin Islands have been delayed for several years, in part because of spiraling costs.

OPEC's production last year came to about 32 million barrels a day, up 3.2 percent.

It's a good news/bad news scenario. Gas will probably cost more. At the same time, though, expect to see oil producers spend more on high tech equipment to extract oil. At the same time, the public's demand for green fuels may grow as prices continue to rise. (Even oil rich nations don't like high oil prices all of the time. Abu Dhabi is investing in solar.

More on all of these issues later in the fall. OPEC holds a meeting in Vienna on September 11 and will release stats on the industry on September 13.

Biodiesel is sort of like buying cheese. Some of it is fantastic, and some isn't so hot.

Enter the pHLip, a testing system from CytoCulture, which specializes in oil spill technology. Place a few drops of the biodiesel you are thinking of buying into the vial, shake it up, and then let it stand. If the fluid on the bottom stays cherry red, you have yourself good biodiesel, says Randall von Wedel, principal researcher at the company.

red good; orange bad

(Credit: mike kanellos)

If the color changes and the barrier between the different liquids in the jar gets gummy and opaque, the biodiesel contains contaminants. Biodiesel, by the way, is safe it drink, von Wedel told me. I tried it. It tastes like old salad dressing.

You can buy the kits on the company's site.

Testing is probably going to be a feature of the market for a while because standards haven't evolved, said von Wedel, who drives a fancy biodiesel Mercedes. He sometimes gets biodiesel at Fish, a Sausalito restaurant that has a growing biodiesel business. They make the fuel from the deep fat fryer drippings in the restaurant.

Both the fish and fuel are rated highly.

If you drive a biodiesel car in North Carolina, you might be slapped with a fine.

Although the state is trying to promote biofuel production and consumption, the state also wants to collect taxes on transportation fuel. So drivers that are filing up their cars with vegetable oil are getting nailed with fines for tax avoidance, according to a report in the Charlotte Observer.

Musician Bob Teixeira got snagged with a $1,000 fine from the state and may be hit with another $1,000 fine from the federal government, the newspaper stated. He's been filling his 1981 diesel Mercedes with vegetable oil from Costco. To start running the car legally on veggie oil, he will have to post a $2,500 bond, the newspaper reported.

Other drivers have been fined for running their cars on alcohol. In the old days, it was sold as moonshine.

Legal help, though, is probably on the way. The state's Department of Revenue is asking the legislature to exempt small consumers from any bond requirements. Some lawmakers are even going further. State senator Stan Bingham, who drives a soybean oil-powered Volkswagen with a "Goodbye OPEC" sticker, says people that retrofit their cars to avoid burning fossil fuels should be exempt from the state tax altogether.

Solazyme, which wants to turn algae into transportation fuel, has signed a contract to supply oils to Imperium Renewables, a growing biodiesel refiner.

Under the deal, Solazyme will deliver algae oil to Imperium, which will then turn it into biodiesel. Imperium makes biodiesel from a number of plant oils. Solazyme is currently only delivering "pilot scale" amounts of oil, said Solazyme president Jonathan Wolfson, but the production is real.

"We will be delivering agreed upon quantities to Imperium over 2007," he said. "In addition, we are producing algal oil today and have been for some time."

Biodiesel works in regular diesel cars, but it's made of plant or animal oil, which pollutes less than the regular, fossil fuel kind. Right now, biodiesel constitutes a percent of a percent of the world's diesel supply.

Algae, say advocates, is one greasy organism. The single-celled plants produce quite a bit of oil for their size. The North Sea oil fields, some assert, were not created from the bones of dead dinosaurs or palm trees. Instead, it is the prehistoric remnant of a massive algal bloom.

Algae grows rapidly, leading to more crops in a year, and can grow in sparsely populated and unused land in the desert. A hectare pond filled with algae can produce 15,000 to 80,000 liters of vegetable oil a year. Only about 6,000 liters of palm oil can be squeezed out of a hectare a year. Corn is only good for 120 liters per hectares of oil a year, said Tony Espiga, CFO of GreenFuel Technologies earlier this year.

GreenFuel plans to capture carbon dioxide from power plants and use the gas to grow algae in bioreactors, i.e. contained ponds. It's carbon sequestration and transportation fuel all in one. GreenFuel has a demo plant and hopes to open a full-fledged power plant in Arizona this year.

It's also not a major source of food for humans.

But here's the catch. No one is making algae fuel on a massive industrial scale at the moment. Separating the water from algae to leave just oil is also not easy, says Ron Stoltz, government relations manager for Sandia National Labs.

Sandia has performed some of the pioneering work on algae fuel and is working with several start-ups, including LiveFuels, and licensing its technology. LiveFuels has said it doesn't plan to sell algae fuel feedstock until around 2010.

Earthrace, a novel-looking boat that's trying to circumnavigate the globe on biodiesel and set a record, is apparently back on track.

The group set sail from Barbados on March 10 with a goal of getting around the world in less than 75 days. Unfortunately, a series of snags in Central America slowed it down. Engine problems grounded it in Palau last month. The record became impossible to achieve.

Captain Peter Bethune, however, isn't giving up. Instead, he's re-starting the voyage, and taking San Diego as its starting and finishing point.

"If we continue our current pace, we will break the record by 4 days," wrote David Perez of the Earthrace ground crew in an email. The estimated arrival date is June 21. The boat is currently in the Singapore area. You can read more here on the Captain's blog, which is a phrase I've always secretly wanted to use.

Of course, if Earthrace makes it, a do-over like this will likely create debates over who really owns the record. But that's what sports are all about.

The record for circumnavigation is 75 days, and it was set in 1998 in by a British group of sailors in a regular diesel boat. Although Bethune did not have extensive open-water sailing experience, the Earthrace on paper seemed to have a pretty good shot at the record. The boat, a trimaran, can cut through high waves and travel at 40 mph.

Bethune hopes to raise awareness for biodiesel and environmental issues during the race. To help that cause, Earthrace maintains an 'open boat' policy wherever it lands and invites locals to inspect it.