Exxon to Invest $600 Million on Biofuels Development (Update1)

By Matthew Campbell and Eduard Gismatullin
July 14 (Bloomberg) -- Exxon Mobil Corp., the world’s largest publicly traded oil company, plans to invest at least $600 million to research and develop biofuels with J. Craig Venter’s Synthetic Genomics Inc.
The focus will be on developing fuels from algae, Irving, Texas-based Exxon said today in a statement. The company expects to spend $300 million on internal costs and direct “potentially more than $300 million” to biotech specialist SGI.
Oil companies are researching biofuels as they seek to meet energy demand without adding to atmospheric pollution. In the U.S., Sunoco Inc. moved to acquire its first ethanol plant in May with a winning $8.5 million bid for a 100 million-gallon-a- year facility in New York. San Antonio-based refiner Valero Energy Corp. has become the third-largest U.S. biofuels producer after buying distilleries from VeraSun Energy Corp. this year.
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.
Technology in Infancy
“In nature there are examples” of such a process, John Day, head of culture collection for algae and protozoa at the Scottish Association for Marine Science, said today in a telephone interview. Aquaculture is “really in its infancy” and developing oil secretion on an industrial scale would be a “significant breakthrough,” he added.
Exxon has spent more than $1.5 billion over the past five years on energy-efficiency and greenhouse-gas reduction programs, according to the statement. The addition of 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,” said Emil Jacobs, vice president of research and development at Exxon Research and 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. President Barack Obama is seeking to increase the use of fuels derived from renewable resources as part of a plan to cut emissions blamed for global warming.
Large Scale
“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 partnership with Exxon “could lead to the large-scale production of biofuel from algae,” he added.
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.
U.S. Legislation
The House of Representatives passed a bill on June 26 to limit greenhouse gases and create a trading system for pollution permits. The cap-and-trade bill, which cleared the House on a 219-212 vote, faces a more difficult path in the Senate, where regional and philosophical differences have divided Democrats.
In Europe, oil companies are also investing in biofuels research to help meet a European Union clean-fuel target. The 27-nation EU wants biofuels to make up an average 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.
BP Plc, the continent’s second-biggest oil producer, 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,” David Nicholas, a London-based BP spokesman, said today. “They are looking at the very broad range of potential technologies.”
BP is working on projects to make ethanol from sugarcane in Brazil and biofuel from wheat in the U.K., Nicholas said by telephone. It’s also developing technology to produce cellulosic biofuels from grasses and biobutanol from fermenting biomass.