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Will Petrosun's Algae Biodiesel Grow on Investors?

by Tom Konrad

Celluslosic Ethanol is all the rage.  A less noticed, but significant "Biofuel 2.0" is biofuel based on algae.

Follow the Biomass

As I have consistently argued (see these recent articles on John Deere, Biogas, Cellulosic Ethanol vs Biomass Electricity, and Renewable or Green Diesel)  the people most likely to make money from biofuel are not the processors and distributors (who compete directly with petroleum or other fossil fuel-based products, and so have little pricing power), but the producers of feedstock, which, like oil, is in very limited supply, and so they will have pricing power.

When it comes to converting sunlight into biomass, algae is the most productive type of plant.  According to this chart from Five Star Consultantsfivestar.bmp , Biodiesel from algae has the potential to produce enough fuel to drive a Prius-type car 370,000 miles per acre per year (MAY), compared to 2,000 to 31,000 MAY for conventional biodiesel crops, while ethanol from switchgrass could produce 32,500 MAY.  Furthermore, some strains of algae are as much as 40% oil by weight, leading to the hope of a large supply of oil which is much easier to convert into biodiesel than it is to ferment even corn (let alone cellulosic biomass) into ethanol.

With an order-of magnitude advantage, it would seem that algae is the green wave of the future, and actually so productive that it could produce enough biomass feedstock for us to continue to drive our SUVs with our current reckless abandon. 

Theoretically, biodiesel produced from algae appears to be the only feasible solution today for replacing petro-diesel completely... In practice however, biodiesel has not yet been produced on a wide scale from algae, though large scale algae cultivation and biodiesel production appear likely in the near future (4-5 years). - Oilgae.com.

Ponds or Reactors?

There are two basic approaches to growing algae: open pond and closed reactor.  The open pond method, which is what Petrosun Drilling (OTC:PSUD) recently announced they are pursuing, involves growing the algae in open ponds of water, much like it grows in nature.  Open ponds are clearly quite cheap, but they require a reliable supply of water to replenish that lost from evaporation (making them impractical in all but the wettest parts of the country (Petrosun's first farm will be on the Texas coast, and use saltwater, which helps with this problem.)  The lack of temperature and weather control can further decrease yields from the theoretical potential.

The other problem with open ponds is that it is impossible to keep other types of algae (a.k.a. weeds) out, meaning that high percentages of oil in the final crop will be impossible to attain. This means that biofuel produced from pond algae will require much more extensive processing to be turned into fuel.  It's easy to grow pond scum, but turning it into something useful is harder.

The other option is the algae bioreactor, one type of which (from Solix biofuels) was referenced in the chart above.  The Solix technology uses closed plastic bags agitated by rollers, has climate control with the use of controlled radiative cooling, and uses concentrated carbon dioxide emissions to enhance algal growth.  (The best description of the technology is at Algae @ Work, a company which was started by Solix's former CTO seeking to apply the technology to carbon capture.)  

To me the bioreactor approach (Solix's technology is only one version) seems most likely to achieve the promise of extremely high yields, and even that is not without problems.  Large scale bioreactors are complex systems.  As such, they will be expensive and take great efforts to move from the lab to commercial scale.

Ken Regelson, the author of the chart above, and he believes that Solix does not have "a prayer of achieving their expected yields per acre" but that he used the number from Solix because he has yet to get authoritative numbers from anyone else.  

What about Petrosun?

I wrote this article because readers wanted to know about Petrosun Drilling (OTC:PSUD), an oil exploration company that has been promoting their algae biodiesel efforts since September.  Other than Petrosun, the only public companies I know of which are seriously looking into algae based biodiesel are large conglomerates: Boeing (BA), Chevron (CVX), Royal Dutch Shell (RDS-A) and Honeywell (HON), which can take the long view and have large research budgets to finance their efforts for as long as it takes.  If you click through the company names to the news stories, you will note the common theme: These are all research stage projects.  

Petrosun has not filed even an unaudited quarterly report since March 2007.  Given that it is also promoting exciting technology, I detect the whiff of snake oil salesmen.  Although readers are clearly interested in this company, until they begin to file current information, I don't consider it worth my time to investigate further.  Petrosun's main product is much more likely to be snake oil than algae oil.

Even if Petrosun does execute on its algae farms, will there be any first mover advantage?  It seems unlikely to me; growing algae in open saltwater ponds will depend on access to suitable land near coastlines... later entrants who can acquire suitable land should be able to produce algae just as efficiently as Petrosun, since they do not seem to have any special technology or expertise.  After all, the company is simply an unsuccessful oil exploration company with a algae farm division.

DISCLOSURE: Tom Konrad and/or his clients have positions in these stocks mentioned here: HON.

DISCLAIMER: The information and trades provided here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

 



was posted on AltEnergyStocks.com.


       

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Comments

I was wondering you did not mention aquaflow which uses algae from wastewater

Robert:
There are so many approaches to algae I can't keep track of them all... but all the ones I know share a common theme: they are not investible.

Algae from wastewater sounds interesting, but until there is a *public* company pursuing it, I can't invest.

The reason I gave Solix so much press is because they are local, and I have seen in-depth presentations on the technology.

Tom,
PetroSun has been an interesting play in the algae-to-biofuels space. Their biggest claim is that they sponsor the Independence Bowl football game.

But if you view them as a typical "wildcatter" -- which is certainly how they started their company -- then their foray into algae makes sense. Exxon's Angola offshore properties take up about 1 million acres and produces about 500,000 bbls/day. This works out to about 7,500 gals/acre/yr -- which is at the low end of the estimates for algae yields. PetroSun is looking to develop 1000 acres of salt ponds into algae near So. Padre Island. If it works out then they could expect to have a tanker truck (10,000 gals) leaving there every day.

It takes 8-10 years and billions of dollars to bring in an offshore well. This might be the only way a company like PetroSun can stay relevant. It just means the investors need to be really patient.

Thanks Rich,
Patience, that's a commodity in short supply in bear markets. It's so much easier to be patient when your stocks are going up.

I agree that algae ponds will be profitable (for someone) in the long term, but given that the company's finances are opaque, I expect that they will have to raise considably more dilutive capital to make it from here to there, meaning shareholders today are unlikely to see any gains for their patience.

An Email from a reader
Further to your article on biofuels from alge you mentioned that the only public companies you are aware of seriously looking at biofuels from alge are large conglomerates. Well here is another startup company Global Green Solutions Inc. GGRN on the OTC: BB. They are using what they call "Vertigro" technology which uses high density vertical bioreactors to mass produce rapidly growing alge converted to vegetable oil and refined for biodiesel fuel.

They will be posting new audited financial information in April 2007 and will be reporting from now on in a timely manner; they also may be seeking to get on the OTC:BB.

Two "algae" companies I've come across have some interesting approaches.

Valcent produces algae in their closed loop bioreactors -- initial "test" runs were at 33,000 gallons an acre -- on semi-arid land in the El Paso area of Texas that can't be used for food cultivation.

Valcent's product, which will be distributed by Global Green Solutions (mentioned in post above) thinks it can find the right algae species to get them up to the 100,000 gallon level. Indeed, they claim that if 1/10 of the state of New Mexico were used for algae production, they could meet the energy demands for the entire United States.

Go here for a "must see" video interview on algae per se and the technology: http://www.scribemedia.org/2007/11/15/glen-kertz-valcent-vertigro-algae-biofuel/.

Perhaps even more intriguing is SF-based Solyzyme. They're private and very EEStore-like secretive. They claim not to even need sunlight to make algae. If that's true, they just solved one of the major obstacles to industrial production of biodiesel from algae.

Chevron seems to be impressed. America's number two oil producer signed an agreement the company. I'm guessing here, but to get Chevron to open their wallets, I pretty sure they told them a lot more about their proprietary methods than the almost 'nothin' they told me!

Solyzyme claim they their "oil" can be used to make anything that currently comes from a convention barrel of hydrocarbons. Jet fuel, petrol, plastics...the whole nine yards!

Importantly, oil from their algae also promises no change in infrastructure required. They just drove a diesel Mercedes all around San Francisco. Just funneled their oil in...and away they went.

After all, they remind us, oil itself is essentially fossilized algae.

Hmmm...

What is the latest in the PeroSun start up? Are they actually producing at this point?

Rich - I don't follow this company... why should be clear if you read the article.

It seems to me Solyzyme may be using a process simular to the way natural oil was formed. Alge (and other organic material got underground and eventually became oil (and natural gas). Of course to do this may take longer than other methods, however a large oil Co could take the long view. After all they have time and old low production or closed oil fields they could use to store alge and other waste (sewage, farm waste etc)unitl it breaks down and converts.

"The other problem with open ponds is that it is impossible to keep other types of algae (a.k.a. weeds) out" The USDOE found in their seminal "A look back..." report that the best way to get your algae was not to use customized strains, but simply to let mother nature colonize your ponds. This directly contradicts your article.

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