Monday, November 30, 2009

Algae oil: just a niche, in time

In my last two posts about the probability of commercial algae production, I've gone from having optimistic hunches to reporting facts by people well-versed in the sector. Despite their pessimism (and now mine), everybody seems to unanimously wish it wasn't so that competitive algae fuel is maybe 10 or more years down the road. Maybe their gloom is not quite so warranted. After all, Exxon did invest $600 million into an algae fuel deal with Synthetic Genomics in July 2009. There have been other big deals with traditional oil companies as well as venture capitalists.

Katie Fehrenbacher of Earth2Tech seems to hold out hope that technological breakthroughs, scalability and commercial production can be eased on down the road with Big Oil's big money. Contrary to what many say, I think this may be an area where throwing money at the problem can solve it. Her reasoning is more rational.

Commercializing algae fuel technology is very expensive, Fehrenbacher writes, can the only companies with that much money and an infrastructure which can be used by the new industry is Big Old Oil. And with commercial algae fuel plants estimated at a cost of over $100 million, scaling up also becomes the domain of Big Oil. If algae fuel is for real, then Big Oil isn't going to care whether the fuel coursing through its refineries, pipelines, trucks an ships comes from biomass trapped underground eons ago or microalgae.

So that's one possibility. The second set of possibilities comes from Robert Rapier. He posits three situations in which he believes algae fuel could find a profitable niche. The first is the case in which "the oil is produced as a by-product." Algae, for instance, can be used in pet food or as a base ingredient in cosmetics. If a company begins business primarily to cultivate algae to produce products like these, and the oil is simply a by-product of the main production process, then we may have something profitable. The reason is that the costs of production would be mainly covered by the consumer product.

The second situation is what Rapier calls the "wild card," the approach being used most notably by Solazyme. First, the company plays around with the genetics of algae to get better oil yields. Then, it uses a fermentation method in which the algae is raised in closed tanks and fed sugar. In my last post, I mentioned a study by the British Columbia Innovation Council in which they reported that fermentation as a means of algae oil production topped bioreactors and open raceways by coming in at $9.03/gal for the costs of production. That was 10 times cheaper than bioreactors and five times cheaper than open raceways. According to Earth2Tech, venture capitalists and Chevron have invested $76 million in Solazyme.

The third situation, reports Rapier, is one in which algae oil production is just one step in a more complex flow chart of energy processes. He notes as an example an integrated approach where polluted or waste water is used to feed and grow the algae. The principal operation is cleaning up the water; any algae produced in the process can be converted into biofuel. Again, the costs are cheaper because they are principally borne by the primary activity.

I'm not sure if W2Energy's operations are what Rapier has in mind here, but I think what they, and companies like them do, is a niche that can be profitable. In earlier posts, I wrote how W2Energy signed a deal to convert old tires into fuel products and energy that could be sold to the power grid. I also wrote about their deal to do the same with municipal waste in Laurel, Md. A look at their process flow chart shows the biomass converted into a gas during the plasma phase. Leftover CO2 from that operation is then fed into bioreactors which produce algae. The algae is then fed back into the plasmatron to create more gas and fuel products. As I've described, they fit this operation on the bed of a tractor trailer and can chain them together to scale up. It ain't fancy but at least W2Energy is doing some real business that seems to have a better chance of making profits sooner, than some pie in the sky 20 years from now.

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