ExxonMobil to research algae-based biofuels with Synthetic Genomics

This morning, ExxonMobil (XOM) announced that it will enter an agreement with Synthetic Genomics (SGI) to research and develop next-generation biofuels from photosynthetic algae.

For those of us who were reared on The Jetsons, flying cars are the benchmark for stranger-than-life transportation advancements. Even so, the idea that we may actually have cars that can run on fuel produced by algae (or "pond scum," as my country ancestors would say) is pretty darn cool. The companies' "advanced biofuels" will be produced by photosynthetic algae and will, allegedly, be compatible with gasoline and diesel fuels.
If the program meets the research and development milestones set, XOM will spend more than $600 million, including $300 million in internal costs and possibly more than $300 million to SGI. Michael Dolan, senior vice president of XOM, said that the new program "complements ExxonMobil's ongoing efforts to reduce emissions in our operations and by consumers of our products, through both efficiency improvements and technology breakthroughs." The hope is that this alliance will result in a viable biofuel that will be able to be produced in large quantities.

Algae is considered a sustainable source for second-generation biofuels. These products represent a significant step beyond corn-based ethanol: as they use non-food sources of fuel, they do not compete with other forms of biofuel for land space. The reliance on non-food fuel sources could result in a price impact in areas apart from just oil. For example, corn prices could -- emphasis on the word "could" -- be driven lower. As of now, ethanol-based fuels are a viable alternative to crude-based fuels, so it is going to take a lot more than just news of research to drive these prices lower. The same goes for oil prices: the mere threat of algae-based fuels won't have much effect on the cost of crude.

More importantly, this move by XOM signals a bit of a shift in the company's methodologies. In the past, XOM has turned a wary eye toward "green" sources of energy -- such as wind, biofuels and solar power -- and has even cast skepticism on any research questioning the impact of man on the climate. Furthermore, XOM fought proposals that it invest in renewable fuels at its investor meeting in May.

In this context, it seems likely that this major shift in philosophy could be a response to the upcoming lowered-emission standards for the car industry. Algae-based biofuels represent one way for big oil companies to try and adapt to the stricter environmental standards that are likely to be imposed by the Obama administration.

On the other hand, the move toward algae-based petroleum substitutes could also be the first step in a long-term strategy. The development of this fuel could give the company a leg up should a time come when everyone is forced to use biofuels. Instead of fighting the transition kicking and screaming, it seems that XOM has switched its tune and is trying to find the newest biofuel.

In the end, while XOM may profess to love the environment, it seems likely that the company's primary motivation may be a different green: the green of money. While this move doesn't suggest a total shift from black gold to biofuels, it offers a glimpse at a paradigm shift in the making.
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