Exxon to invest $600 mil in biofuels development

Exxon Mobil Corp., the biggest U.S. oil company, plans to invest more than $600 million to develop biofuels with J. Craig Venter's Synthetic Genomics Inc.

The venture will focus on making fuels from algae, Irving, Texas-based Exxon Mobil said today in a statement. The company said it expects to spend $300 million on internal costs and pay "potentially more than $300 million" to biotech specialist Synthetic Genomics, known as SGI.

Oil companies are investing in biofuels research as governments ramp up mandates for use of petroleum alternatives. Philadelphia-based refiner Sunoco Inc. acquired its first ethanol plant last month. San Antonio-based Valero Energy Corp., the biggest U.S. refiner, became the nation's third-largest biofuels producer this year after buying plants out of VeraSun Energy Corp.'s bankruptcy.

Algae, an aquatic crop that absorbs carbon dioxide as it grows, can be converted into oil for processing into jet and motor fuels. While it has traditionally been grown and harvested like other plant life, SGI has developed a method that allows algae to secrete oil continuously, making larger-scale output more feasible, according to the company's Web site.

"In nature there are examples" of such a process, said John Day, head of culture collection for algae and protozoa at the Scottish Association for Marine Science. Aquaculture is "really in its infancy" and developing oil secretion on an industrial scale would be a "significant breakthrough."

Technology in Infancy

Exxon Mobil has spent more than $1.5 billion over the past five years on energy-efficiency and greenhouse-gas-reduction programs, according to today's statement. Biofuels made from algae may be a "meaningful part of the solution in the future if our efforts result in an economically viable, low-net-carbon- emission transportation fuel," Emil Jacobs, vice president for research and development at ExxonMobil Research & Engineering.

Congress passed energy legislation in 2007 that calls for 21 billion gallons of so-called advanced biofuels in U.S. transport fuel by 2022 and 2 billion gallons as soon as 2012.

"The real challenge to creating a viable next-generation biofuel is the ability to produce it in large volumes, which will require significant advances in both science and engineering," Venter, chief executive officer of SGI, said in the statement. The Exxon Mobil partnership "could lead to the large-scale production of biofuel from algae," he added.

Biofuel Push

Venter is best known for his role in the sequencing of the human genome in the 1990s and early 2000s.

As oil companies look for alternative energy sources to power the growing numbers of road vehicles, airlines are also testing biofuels after the International Air Transport Association said member carriers should use 10 percent alternative fuels by 2017 to reduce global warming.

In January, Houston-based Continental Airlines Inc. conducted the U.S.'s first demonstration flight using biofuel in a commercial jet. A fuel blend made from algae and jatropha scrub plants powered the unmodified twin-engine Boeing Co. 737- 800, the company said.

The U.S. House of Representatives passed a bill on June 26 to limit greenhouse gases and create a trading system for emissions permits.

Shell, BP

In Europe, oil companies are investing in biofuels research to help meet a European Union clean-fuel target. The 27-nation EU wants biofuels to make up an average of 5.75 percent of transportation fuels by 2010 and 10 percent by 2020, compared with about 1 percent today.

Royal Dutch Shell Plc and HR Biopetroleum announced plans in December to build an algae-growing plant in Hawaii to produce vegetable oil for biofuels. Shell, Europe's largest oil company, said it may target the EU market once production comes on stream in two years' time.

London-based BP Plc, the second-biggest European oil company, plans to team up with U.S. universities to spend about $500 million over 10 years on biofuels research.

"Algae is certainly one of the technologies that will be considered, probably through the fundamental research we are supporting with the University of California, Berkeley," BP spokesman David Nicholas said today. "They are looking at the very broad range of potential technologies."

Advances Needed

Growing algae for fuel isn't "economically viable" with current technology, said Alison Smith, a professor of plant sciences at the University of Cambridge in England. "The amount of energy you get out at the moment is less than you put in."

As research advances, Smith said, "there's no reason why it should not be as viable as any crop fuel."

BP is working on projects to make ethanol from sugarcane in Brazil and biofuel from wheat in the U.K., Nicholas said. It's also developing technology to produce so-called cellulosic biofuels from grasses and biobutanol from fermenting biomass.

Exxon Mobil scientists have been researching ways to make ethanol from corn stalks and other non-food plant sources since at least 2006. So-called cellulosic technology would yield larger amounts of fuel than existing methods of distilling ethanol from grain, which Chief Executive Officer Rex Tillerson derided as "moonshine" in a February 2007 speech at a Houston energy conference.

Exxon Mobil rose 28 cents to $65.98 at 9:48 a.m. in New York Stock Exchange composite trading. Before today, the stock had dropped 18 percent this year.