Argument: Algae biofuel start-ups exaggerate estimates to attract capital

Issue Report: Algae biofuel


“Algae biofuel mania”. Stockhouse. 11 June 2008 – Proponents of algae love to talk about the amazing potential yields of the crop. Barry Cohen, president of the new National Algae Association, a trade group, assured me that “millions of gallons per acre” were possible on a continuous production basis—in other words, a one acre algae farm would give a two billion dollar oil refinery a pretty good run for the money. In contrast, the most fecund terrestrial oil crops might give you 1,000 gallons per acre on a yearly basis or several orders of magnitude less.

I’d never heard claims quite that extravagant previously, but some researchers, extrapolating from test tube results in the laboratory, have projected yields of thousands of tons of biomass per acre on a more or less continuous basis. And this is what the press has seized upon, infinite oil from practically nothing.

So is algae really that promising? I am currently putting together a report on the subject, and I shall have what I hope are definitive answers when it is finished. In the meantime I can make some tentative observations regarding the logistics of production and some provisional suggestions as to the investment potential of this industry.

First of all, nobody is making a fortune selling algal fuel today, and in fact real commercial facilities are practically nonexistent. It’s largely a business of pilots and experiments with all sorts of different production processes competing with one another, and none with proven economics.

“Algae biofuel mania”. Stockhouse. 11 June 2008 – Certain forms of algae may yet prove to be excellent high yield fuel crops. I’m betting against algae emerging as the perfect solution to our fuel problems though.

At the same time I believe that some people are going to make a lot of money in this new industry, not so much by selling fuel as by selling equity and by selling intellectual property. The transportation industry is going to give algae a serious trial and some algae companies will achieve impressive stock valuations just as some fuel cell companies did. There may even be some killer IPOs, though none has occurred in the larger biofuels industry as yet. A couple of weeks ago a firm in San Diego calling itself Sapphire closed a forty million dollar investment round, impressive even by the inflated standards of the era. There will be others.