- Corporate Governance
When will algal fuels be economically viable?
April 17, 2014, by Dr. Stephen Mayfield
Dr. Stephen Mayfield, Director of the California Center for Algae Biotechnology, University of California San Diego, writes in the current issue of the newsletter of the International Society for Applied Phycology about the question frequently asked of him: "When will algae-based transportation fuels be commercially available?" His answer tends to be that they are available now, and have been since roughly 1900. In fact, algae-based fuels are the only kind you can buy!
He goes on to say, "I say this somewhat facetiously, because crude oil and the fuels that come from it are all derived from algae. Granted, these are ancient fossilized algae that have undergone some chemical transformations over millions of years, but more or less all of the crude oil processed today, including things like shale oil and tar sands, are ultimately derived from algae.
"I realize that what people generally mean by these questions is 'When will it be possible to grow, harvest, and process living algae into drop-in hydrocarbon fuel that can compete economically with fossil fuel,' but I answer the way I do, in order to make one essential point: that fuel from algae is not a scientific hypothesis, or some new scientific discovery that needs to be validated. It is a done deal, a proven and known commodity; fuels from algae power most of our cars, trucks, ships and planes today.
"...if fungible fuels derived from algae are compatible with our existing transportation network today, when will these algae-based fuels - fuels made from recently living algae - be available at a large enough commercial scale to be economically competitive with fuels made from fossil crude oil? That is actually a very complex question that has many variables associated with it. Some of those variables have to do with future cost, of both crude oil as well as renewable algae oil, and neither of those costs is easy to predict, but we do see trends.
"Let us start with the direct cost of crude oil. Today that is about $100 dollar a barrel for West Texas Intermediate (WTI) and $110 for Brent, with the difference in price having to do with local supply and demand, but more or less, we will put that figure at $100 a barrel. Oil has been roughly $100 per barrel for the last three years, but going back only about ten years, historically oil has traded for under $20 a barrel. So what are the variables driving the cost of crude oil? One of the most important is that at $100 per barrel, it is economical to use fracking to produce shale oil. Fracking is not new technology and the fields where it is being used now are certainly not newly discovered fields, but at $100 a barrel, it is profitable to extract oil from shale using fracking technology.
"So, what that really means is that $100 a barrel is the new "floor" on oil prices; once it dips below that price, fracking becomes economical unviable, the supply will drop, and prices will climb again. Therefore, this sets the floor but not the ceiling, or even the average price. It's hard to guess what that ceiling or average price will be, but current trends indicate that it will continue on the path of the last ten years, which is to go up on average about 10% per year, meaning that five years from today it is realistic to assume oil prices at roughly $150 a barrel.
"Now let us look on the other side of the ledger, at the cost of algae oil. There have been a range of recent estimates of the cost of producing a barrel of renewable algae oil, with estimates as low as $28 a barrel, to as high as a few thousand. The low estimates get to their costs by assuming significant offsets from co-products or other waste stream offsets, while the high estimates get to their costs by making (often outlandish) assumptions on the price of building an algae production facility. A price for algae oil was recently determined in a paper by Benemann et al (2012) and placed at $240 a barrel, based on some conservative assumptions. So let us say that $240 a barrel is today's price for algae oil, and then assume that as a result of logical biological and process decisions, algae fall into an agricultural model of increased productivity and reduced price over the next ten years.
"Viewing American agriculture for the last 50 years, it is clear that crop yields have increased dramatically over this period, with corn yields for example going up almost 400%. It seems reasonable to assume that algae yields will follow a similar path, especially over the next few years, when large gains should be easier to come by as genomic and molecular technologies begin to be applied to a crop that has yet to benefit from these proven innovations."
Mayfield goes on to extrapolate via the increasing efficiency of deriving fuel from algae and the increasing cost of extracting petroleum, leading to his conclusive prediction: "...algae oil achieves economic parity with fossil crude oil at $140 a barrel in 2019 and beats it by $50 a barrel by 2024 when algae oil is at full commercial production scale."
A good read, and an important perspective.