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Carbon Neutral Fuel
To reduce carbon emissions, the favored road has been to replace combustion engines and thermal power plants with alternatives like EVs and renewable energies. But this is not always easy.
For example, airplanes have, for now, no realistic pathway to run on electric power, as batteries are too heavy to fly. And even if we finally reach this point, it will take decades for the existing fleet to be renewed.
Other advantages stem from the practicality of liquid fuels. They are easy to store in massive volumes for emergencies. They can stay stable for months or even years. And they are easy to carry by tanker or pipes. This makes them ideal for remote locations, military uses, and shipping.
Until some revolutionary new technology emerges, there will be a persistent demand for liquid fuel. So, the challenge is finding liquid fuels which are not reliant on the supply of fossil fuels.
This was the reason for the push toward the use of biofuel.
1st generation biofuels were and still are problematic, as they relied on transforming food products like corn into ethanol. This puts extra pressure on the environment and relies on massive industrial-scale farms practicing monoculture. When considering the fossil fuels used for fertilizers and tractors, it might not even be much better than standard gasoline. And there is the ethical dilemma of using food to make fuel, with fuel consumers living in rich countries and poorer countries suffering from food shortages or inflation.
2nd generation biofuels are designed to use leftovers of agriculture or other plants like grass to produce fuels. This is already better, as it does not compete directly with food production. But it still requires a lot of land, and the conversion from plant to fuel can be quite inefficient. And just farming wastes are not in big enough volume to make a real difference in total fuel consumption.
3rd Generation biofuels rely on algae and a closed system independent from arable land. Theoretically, this should be the perfect way to produce biofuel, as it does not compete with existing agricultural resources. It could also use abundant seawater instead of previous fresh water.
In practice, algae biofuel has been tested but not produced on an industrial scale.
There is even discussion of 4th generation biofuels, or “photobiological solar fuels“. They would rely on mimicking algae photosynthesis with artificial nanotechnologies. But these are still in labs and will not reach commercial scale for a few decades.
Hurdles and Constrains for Mass Production
The problem plaguing 3rd generation of biofuels has always been yield. Algae concentration is too small, production costs are too high, and conversion into fuel is both capital expenditure and loss of some of the energy contained in the algae.
Any contamination by other organisms could also destroy a harvest and reduce profits. An alternative was to grow it in closed sterile containers, but this raised costs as well.
In addition, the first tentative of algae biofuel production in the 2010s required algae harvesting, a complicated process that also interrupted the production.
The consequence has a production cost staying above $5 to $8 per gallon, making it not competitive against fossil fuels.
Second Time the Charm?
Due to elusive profitability, the first algal biofuel boom in 2009-2010 did not turn into an energy revolution. You can read more about what went wrong in this article from 6 years ago.
Since then, progresses have been made that are “fueling” a new boom in the sector:
- Advanced genetic engineering techniques are now applicable to algae.
- Better understanding of how to turn algae into fuel.
- Discovery of rare species that can resist contamination and be grown in open pounds.
Another factor is the de-facto end of cheap oil. Shale oil needs at least a barrel at $50-70$ to make a profit, oil discoveries are at their lowest since 1946, and the war in Ukraine has triggered a global energy crisis.
With oil getting rarer and more expensive, domestic algal biofuel production is suddenly a lot more attractive. So, a new wave of algae companies is now scaling up to produce carbon-neutral fuel in the most environmentally friendly way. (more on that in the “Investing in algal biofuel” section)
Fueling the New Algae Boom
Beyond technology and fuel price, what has changed is how to invest in algal biofuels. The last boom was driven by an army of ambitious startups with limited funding. This was a problem in a business requiring not only innovation but also a massive capital investment. In all likelihood, algae biofuel will become a real thing only through a successive process:
- Fundamental sciences to understand the biochemistry and genetics of microalgae.
- Selection and engineering of the right strain of algae optimized for lipid production.
- Optimizing the production process, including cultivation, harvesting, and conversion into fuel.
- Scaling up production in order to cut costs
In 2010, steps 1 & 2 were not really there, with no reliable method for modifying algae genetics, for example (including no full genome sequenced for most species).
The chemistry of conversion into fuel was hazy at best, especially on an industrial scale. And a misguided focus on ethanol production instead of lipid proved a dead end.
Step 3 also proved difficult, with scientist-led startups often failing to implement industrial design.
Finally, with low production yields, no amount of scaling up could solve the profitability issue, and capital quickly dried out.
Investing in Algae Biofuel
In 2023, the scientific questions have been solved in large part. For example, The company Viridos discovered how to more than double the concentration of lipids in algae by changing just one gene. For that matter, tools developed in the last 5 years, like NGS (Next Generation Sequencing) and CRISPR, also made gene editing so much easier and cheaper. Similarly, there are now many well-understood methods to turn algal lipids into fuels.
The last thing is that while the fundamental research is often done by focused startups, the money and industrial scaling-up now come from very large companies. Often old-school oil companies.
As a result, investing in algal biofuel means investing in the few big companies that are building a future where they grow carbon-neutral oil instead of drilling for fossil fuels. This might not be good for dreams of 100x gains. But they should nevertheless be good investments, as these few large corporations will be the only energy companies with the unique IP to manage the energy transition without competing with every other renewable energy. They are also already profitable companies giving away generous dividends or growing aggressively.
1. Exxon Mobil
This is maybe the most surprising name on the list of possible biofuel investments. Exxon is something of a nemesis for environmental activists, regularly accused of being a major contributor to global warming. But it is also the world leader in algal biofuel through its collaboration with Viridos.
Viridos is a company founded by Craig Venter, the father of synthetic biology and among the first to sequence the human genome. It was also the first to create a synthetic genome and an artificial/synthetic cell. And they have come a long way since they started researching algal biofuel more than a decade ago:
Exxon is planning to produce 10,000 barrels of algal biofuel a day in 2 years. It is still small compared to the total of 3.7 million barrels per day produced by the company, but if successful, it could be ramped up quickly to represent a large part of the company's production by 2030.
Reliance Industry is a massive Indian conglomerate, the largest private company in the country, active in telecom, textiles, and energy. In 2022, it was the first Indian company ever to reach $100B in revenues.
Reliance has released a video announcing its entry into the algal biofuel market, boasting “one of the largest algae cultivation systems in the world”. Until now, its energy portfolio was mostly refinery and petrochemical plants. With this algal project, it would be able to start production and use the abundant sun in India (as well as uncultivated deserts) to reduce the country's extreme reliance on foreign fossil fuel imports.
Crowdfunding & VC
We could not find an ongoing campaign at the time of this article. But it is something investors with more risk appetite will want to look out for, like the successful 2021 crowdfunding campaign for Manta Biofuel. They are using open ponds and magnetic nanoparticles to harvest the algae.
Accredited investors and VCs will also have access to a much more diverse array of investing options. For example, Primary Ocean, growing seaweeds for food, bioplastics, and biofuels. Or Algenol (chemical cosmetic and biofuels) or Gevo (diverse biofuels).
Algal biofuels have been undergoing a silent renaissance behind the closed door of megacorporations with deep enough pockets and the patience to solve the problems of costs and scalability. The emergence of large-scale projects like the Exxon 10,000 barrels/day is a sign that algal biofuel is now becoming a mature technology.
This also means that new startups will likely emerge in the field, as Manta Biofuel did in 2021. So, investors should have a growing array of investment options in the next few years. Other oil companies might also look to catch up and bid up for any company with the technology to help. Most likely, this will be companies already producing high-value compounds from algae and experienced in large-scale production. So algae companies, in general could become the new big trend by 2025-2026
Investors in companies like Reliance or Exxon might not want to invest in these companies solely on the algal biofuel thesis, as they are going to be, for still a few years, mostly reliant on other income streams. However, this technology will improve the long-term prospect of these companies, as an oil giant like Exxon will be able to smoothly transition from fossil fuels to algal fuels by simply redirecting its capex from drilling to building algae-growing pounds.
In the case of rising carbon taxes, this will also provide a viable alternative to keep liquid fuels at a reasonable price, making algal biofuels a lot more profitable in that scenario. And contrary to fossil fuel, costs are expected to decrease with constant improvements in the genetic engineering of algae.