Energy Investments in Algae and Biofuels in 2021


INSIGHT




1. ALGAE BIOFUELS WILL SUPPLEMENT THE FUEL SUPPLY


We have shown that biofuels will transform the energy sector because they are a substitute for oil, but with a smaller carbon footprint. Many people rightly point out that biofuel production takes up a lot of land and that biofuels are not energy efficient because too much energy is needed to produce them. This article will show that biofuels are a suitable addition to the conventional fuel mix and will have an impact on the industry in the near future, especially on the aviation and transportation sectors. For this reason, the commercial potential of algae fuels should be highlighted.

   


2. IT IS DIFFICULT TO COMMERCIALIZE ALGAE BIOFUELS


The big oil producers have invested a lot of money in figuring out how to make biofuel from algae. Different criteria have to be taken into account, such as producing algae fuels in a cost-effective way, reducing the energy costs to produce the fuel, transporting the fuel, the digestion process and chemical inputs to produce the fuel, and accelerating the growth of the algae. As it turns out, this is much more difficult to accomplish than originally thought because of the difficulty of growing algae and commercializing it on an industrial scale.

We have to go back to the 19th century to make valid comparisons. It actually took quite a long time for coal and oil to catch on. The mid-stream business, the transportation of the fuel to the customer, had to be established. And with each new energy source, we have to become more efficient in logistics and production. Otherwise, we will not be able to replace the existing fuel. As with every other energy source we use, scaling production was a major obstacle to making the business idea a reality.


3. HOW TO MAKE ALGAE BIOFUEL PROFITABLE


The first major problem is that that algae has to be grown at an industrial scale, and still remain financially profitable. At the same time the energy return on energy invested (EROI) of algae has to cross a critical threshold, which makes algae production not just feasible economically, but also in terms of production. At present, it does not make economic sense to produce algae at an industrial scale because such a solution cannot compete price-wise with oil and gas.


4. THE LOGISTICS PROCESSES FOR ALGAE BIOFUELS


The logistics are another hurdle that stands in the way of algae biofuels as a substitute for petroleum. It makes more sense to farm algae in ponds, preferably in regions that receive a lot of sunlight closer to the equator. Algae farms could exist near shorelines and could be farmed in shallow and warm waters. Algae could also be farmed in desert locations. Both offer distinct advantages and disadvantages.


If algae are to be farmed in the desert, sufficient water supplies must be available on site, and on a constant basis for it to work. Besides that, transportation issues still exist, which requires energy to transport algae from the plant to the end user. This reduces the energy return on energy invested (EROI) the further away the algae farm is located. In fact, water is an issue throughout the lifecycle of the project, as some of it will have to be resupplied.


5. GENETICALLY MODIFIED ALGAE HAVE A NATURAL LIMIT TO GROWTH


In addition, there is another problem which is plant growth of algae. In order to make biofuels from algae as a substitute for petroleum products, one has to address the fact that most species of algae grow fast in comparison to other plants, but still not fast enough to make it economical. Scientists have tried for years to make the algae fatter, increasing plant growth, and make cells divide faster.


But there is a natural limit to how fast algae can grow in nature and the same holds true for genetically-engineered algae. As it stands, the Shell Company is leading in the industry, when it comes to industrial cooperation with leading scientific research centers attempting to make algae biofuels commercially available. But it is expected that oil majors won’t make algae commercially available before 2030.


6. ALGAE BIOFUEL IS NOT SUITABLE FOR EVERY COUNTRY


Another major obstacle is the fact that different countries also have different energy systems. As some countries rely almost exclusively on oil to meet their energy needs, other countries such as Germany are more enthused to contract biofuels made from algae because they have no domestic oil reserves. The fact that they are also more able to pay for biofuels is another major incentive to target these markets first.


7. ON HOW TO DISTINGUISH GOOD AND BAD OPPORTUNITIES IN THE ALGAE FUEL INDUSTRY


THIS IS NOT INVESTMENT ADVICE; THIS IS NOT CONSULTING. When investing in algae and biofuels, one can pursue a two-pronged strategy. On the one hand, one can invest in promising startups. As a rule of thumb, one can invest in startups that have been active for some time. Second, one can make complementary investments in large oil companies that produce biofuels if they have a promising solution that they are bringing to market. They are most likely able to mass market and quickly scale such solutions. It is very important for them to gain market share once they have found a solution that is commercially viable. Again, this should in no way be taken as financial advice.


8. WHO IS THE LEADER IN THE ALGAE BIOFUEL INDUSTRY? 


Most likely, such a solution will be developed and tried out in the United States, and this is where algae fuel will first be implemented. The production of algae biofuels could also shift global geopolitics, as it directly competes with the oil producers of the Middle East that finance a large share of their budget from oil exports.


9. MARKET ENTRY: ALGAE BIOFUEL FOR SHIPPING AND AIRLINE INDUSTRIES


We also talked about peak oil and the declining oil reserves worldwide. In these articles, we had shown that it is becoming increasingly difficult to extract oil, which means that the operational costs of finding, extracting, processing and delivering oil to the end user are becoming more extensive.


Once the price of oil exceeds a certain threshold of, say, $100 per barrel of oil, it is much more likely that airlines, among others, will look for alternatives to kerosene. They will be the first, other industries will follow once a price cap is reached, which in turn will affect what fuels are available as an energy input.


Other industries will have difficulties in maintaining their current patterns of energy consumption. This is the case for the shipping industry, which uses heavy fuel oil, mainly the residues from the processing of crude oil, as fuel for its containerised vessels. If there are fewer diesel consumers, this will over time have an impact on the consumption of diesel engines.


10. ARE OTHER SECTORS SHOWING AN INTEREST IN ALGAE BIOFUEL? 


One industry that immediately comes into focus is the maritime industry and shipping, which is now committed to reducing emissions and fumes of fugitive compounds. Cruise ships are being converted to gas-powered engines because it is widely believed that gas lasts longer than petroleum. This idea goes back to the peak oil theory, which we have discussed in depth on this website. Natural gas, LNG, are considered to be more environmentally friendly in many regards. How can algae biofuels compete in such an environment when the maritime industry is switching to natural gas?


Algae biofuels will not be very attractive to cruise ship operators in the medium term. The volumes are generally too small to be considered profitable. At the moment, algae biofuel is a niche market. Returning to the oil companies’ investment in algae biofuel research, we note that the fact that algae biofuel is such a niche solution may well explain why R&D investment has been scaled back to some degree. Ultimately, there would need to be an attempt to make algae biofuel viable for a broader market.


The European Union has significantly expanded the availability of grants and subsidies as part of a broad effort to promote green technologies. Second-generation biofuels, such as algae-derived biofuels, could find a place under this umbrella. The various institutes involved in researching environmental technologies could make up for the lag in R&D investment that has resulted from the oil industry’s lack of incentive to invest in a technology that promises not to be scalable in the medium term. 


11. THE FUTURE PROSPECTS OF ALGAE BIOFUELS


For the foreseeable future, algae biofuel would be a nice complement to conventional kerosene in the aviation industry. We know that European airlines have signed long-term contracts to use biofuels, and some of them promise that they will get 10-20% of their fuel needs from biofuels. We may see the other airlines catching up. On the algae producer side, we see that a lot of money has gone into marketing and advertising algae biofuels.


It seems quite reasonable to use biofuels in commercial airliners. Other aspects must also be taken into account. Kerosene has a lower temperature threshold than biofuels. Biofuels freeze more easily than kerosene. The difference is that kerosene is a petroleum product. In addition to the aviation industry, the transportation sector would provide another alternative. However, it is unlikely that the transportation sector will adopt biofuels in the medium term.


12. HOW CAN WE PROMOTE ALGAE BIOFUEL? 


A strategic roadmap always includes a timeline and indications of what is required to achieve a particular goal. Advancing the algae biofuels revolution will require working across industries, potentially leveraging the capabilities of the energy, waste, and chemical industries. The waste-to-energy sector is a key player in all of this and has the faculty to inform the use of heterogeneous waste materials.


Major players in the chemical industry appear to have a strong interest in joining efforts to develop the circular economy. Cross-industry collaboration could achieve the goal, possibly by leveraging different viewpoints and participating in research efforts. The overarching goal is to commercialize algae biofuels and other second-generation biofuels. One would be able to pool resources and manpower and attract more capital.  


If you enjoyed our analysis, we recommend the following article on this website: biofuels potential 2020 – 2030 worldwide. This website provides a wealth of information on second generation biofuels and future energy technologies.


Many thanks for the shared interest in the energy world!



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