RiskMetrics Group: Be wary of Exxon Mobil’s interest in Algae
RiskMetrics Group’s blog recently had an article looking into why Exxon Mobil is so interested in algae biofuels.
Here is their take on the matter:
Two Clues to ExxonMobil’s Algae Agenda
Algae-produced biofuel could be an attractive alternative to petroleum. It can be grown in reactor tanks, where it does not compete with agriculture for farmland. Algae also serve as a “carbon sink,” because they absorb CO2 as they grow.
Still, it is unclear why a company that consistently derives so much profit from oil would invest $300 million in generating a petroleum substitute. On the SIRAN analyst call, Mr. Jacobs offered two clues about how algae fuel fits into XOM’s plans.
First, he said that the firm intends for algae to supplement, not supplant, its oil production. This implies that gasoline-like biofuel is a way to sustain our existing liquid-fuel, internal-combustion-based transportation system. By (potentially) holding down the cost and carbon footprint of liquid motor fuel, algae fuel could forestall the emergence of an entirely new, cleaner infrastructure – like a system of rechargeable electric cars, for example.
Second, the viability of large-scale algae biofuel production is uncertain. Mr. Jacobs said that in about 10 years, XOM/SGI research will have advanced to a point where the company can judge if algae fuel is commercially viable. If so, algae fuel output could be ramped up, and would then contribute to XOM’s bottom line.
But what if ExxonMobil instead decides that, according to its metrics, algae offers insufficient return on its investment? What will then happen to ten years of research? The firm is unlikely to simply spin SGI off, either independently or to a competitor. ExxonMobil could potentially do to algae fuel what General Motors did to its EV1 electric car, snuffing it out before it ever reaches the mass market.
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I found your entry interesting do I’ve added a Trackback to it on my weblog
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Jonathan, your post assumes ExxonMobil and SGI are the only ones developing algae fuels, which is most certainly not the case. There are plenty of other, well funded and well backed algae to fuels companies out there, so XOM does not have the ability to “snuff” it out on its own. Many of those companies aim for the eventual complete displacement of petroleum derived fuels in the US. By the way, SGI (Synthetic Genomics) is a seperate company from Exxon so Exxon cannot do whatever it wants with it.
As for algae being used as a way to avoid the electric car, perhaps this is part of the desire, but electric cars will not likely replace long haul needs like trucks, ships and rail that use diesel and will likely never replace jet fuel. Algae fuels can provide renewable, drop in diesel and jet fuels. Electric vehicles can and may be used for short hauls, but even then, the new infrastructure needed would be huge. Algae derived fuels need little or no new processing, transportation or distribution infrastructure.
Todd, you are completely right. ExxonMobil and Synthetic Genomics aren’t the only ones developing algae fuels. Some others of great interest to me are OriginOil (who announced just yesterday that they are in the process of selling their technology to an Australian company) and Solazyme (which uses the fermentation process to grow algae). However, the reason I decided to highlight RiskMetrics Group’s blog post is that I do believe Exxon’s investment represents one of the largest made by a petroleum company into algae research and thus could help set the trend for further investment in the field.
Luckily, with the time line being 10 years before Exxon makes the “is algae commercially viable” choice, other algae companies will have already begun commercialization of their processes. A lot of the companies I have talked to believe that they are within the 5-10 year range of commercialization, with some saying even less.
Nevertheless, as with the idea that Synthetic Genomics can do whatever it wants, I guess that would depend on if their agreement with ExxonMobil gives SGI the rights to whatever algae technology is developed. If SGI doesn’t have the rights and after 10 years Exxon finds algae not commercially viable, SGI could possibly be back where they started before Exxon’s investment.
Lastly, your reasons for why we need a liquid transportation fuel are exactly why I have come to be such a strong supporter of algae. The ability for algae to almost seamlessly integrate into our current infrastructure gives it benefits that outweigh practically every alternative fuel I have heard about.
Overall, I am a big supporter of algae fuels (as my previous posts should show) and only wanted to show a different perspective on one of the largest investments in the algae field. Looking back, I should have brought up the points you listed above but, as they say, hindsight is 20/20. Thanks for bringing those up.
Great response. Thanks for clarifying and also thanks for bringing up contrarian views. Not enough of those in many cases.