In the late 2000s, Big Oil led by Royal Dutch Shell (NYSE: RDS.A), BP Plc. (NYSE: BP), ExxonMobil (NYSE: XOM), and Chevron (NYSE: CVX) hyped algae biofuel as the fuel of the future, pumping hundreds of millions of dollars into the emerging industry with promises of decarbonization and energy innovation. More than a decade later, the algal biofuel dream has remained just that–a dream–with virtually all big players but one–Exxon–pulling the plug on their expensive projects.
In 2009, Exxon entered the algae biofuels race with a bang, teaming up with unicorn biotech startup Synthetic Genomics Inc., and outlining plans to invest more than $600M in the clean energy project. Exxon had lofty ambitions to produce algae biofuel within a decade but later pushed back the ETA in 2018 by saying it planned to produce 10,000 barrels of algae biofuels per day by 2025.
Exxon now stands as the only oil and gas supermajor that is still pursuing algae biofuels in a big way with the company claiming on its website to have invested ~$250M in biofuels research over the past decade.
However, it’s going to take some serious feats of financial engineering for Exxon’s algae biofuels to compete in this era of $30-$40/bbl oil or for the company to convince its critics that this is not just another attempt at greenwashing.
The Future of Energy?
To be fair, algae biofuels are not such a terrible idea.
Algae does have some clear advantages over other biofuel candidates, mainly because these photosynthetic microorganisms are super-efficient at converting sunlight into biomass, have high lipid content of up to 80% for some varieties, and are more versatile than, say, corn, a common biofuel crop. Indeed, ancient algae lipids, not fossilized dinosaurs, are responsible for the crude oil that these companies pump. From a technical standpoint, the oil-company-funded efforts to turn algae into fuel were largely successful. However, it’s proven really hard to make the economics of algae biofuels competitive with those of crude.
Mind you, oil was at ~$100/barrel at the height of the algae biofuel craze with even government agencies ponying up funds for algae research. But it’s becoming increasingly clear that we could have entered the era of “Low Forever” with oil prices set to remain depressed for years if not decades. Indeed, an employee of algae-based bioproducts firm Cellana has told BI that crude would have to be around $500/bbl for algae biofuels to compete successfully.
Several scientists have questioned the economics of Exxon’s algae biofuels and termed the prospects of commercial algae biofuel within the next decade unrealistic. Others have labeled Exxon’s algae efforts a PR charade.
Others have swung to the furthest end of the pendulum.
A couple of years ago, Exxon published an article on the New York Times website titled “The Future of Energy? It May Come From Where You Least Expect” where it touted its algae biofuels advances. Unfortunately, this was viewed as just another example of Exxon’s evolving climate denialism and landed the oil giant in trouble.
Massachusetts Attorney General Maura Healey quickly filed a lawsuit against Exxon Mobil, alleging that Exxon’s marketing of “green” petroleum products under flagship brands like Mobil 1 and Synergy was a thinly veiled attempt to mislead consumers about the role of its products in climate change. The AG said that Exxon’s frequent use of the New York Times editorial section was meant “…to shift public perception and was among the most significant and longest regular — in this case, weekly — uses of media to influence public and stakeholder opinion in modern U.S. history.”
Healey took issue with the fact that Exxon failed to mention that 10,000 barrels of algae biofuels constituted a mere 0.2 percent of the company’s refinery capacity.
Asset Write Down
Algae make other products such as protein and omega-3 fatty acids that are far more valuable than diesel. Exxon might have to tweak its business model and concentrate on these high-value products and sell the resulting fuel as a by-product.
Alternatively, it could simply write off its algae biofuel assets. But good luck with that considering that it has stubbornly refused to follow the lead of Shell and BP who have written off ~$40B of their shale assets following the oil price crash.
By Alex Kimani for Oilprice.com
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Alex Kimani is a veteran finance writer, investor, engineer and researcher for Safehaven.com.