Energy Investments in Algae and Biofuels in 2021



1. Biofuels will add to the conventional 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 actually quite difficult to commercialize biofuels, especially algae

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. The next big issue is how to make a decent profit with algae

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. Logistics and operational management are fundamental to successful implementation of biofuels (from algae)

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. Even with geneticall-engineered algae there is 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. Different countries have different energy needs

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. It is difficult to distinguish the good and bad investments in the algae fuel industry

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. This should in no way be taken as financial advice.

8. Who is the leader in the algae fuel 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. Peripheral market issues: Algae fuel

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 apart from the airline industry showing an interest?

In fact, we see cruise ships switching to gas-powered engines because it is widely believed that gas will last us longer than petroleum and that it is more environmentally friendly. Algae biofuels will not be very attractive to cruise ship operators in the medium term.

11. Future assessment of algae biofuels and biofuels in general

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.

If you enjoyed our analysis, I recommend the following article on this website: biofuels potential 2020 – 2030 worldwide.

Many thanks for the shared interest in the energy world!

This article is meant to inform the reader of recent developments in the energy industry at large. We take great pride in our work. Despite all this, we would like to point out that we do not guarantee the reliability of the content on this website.

Please note that this presentation reflects the opinion / views of the author himself. No relationship to companies, institutions or organizations can be inferred from these texts and presentations in any way.

The contents are not to be understood as business advice in any form. The author does not put forth investment recommendations. This article should not be taken as investment advice and the author cannot be held to account for investments made. For more information, please refer to the Legal Disclosure and Privacy Policy, which you can click on or find at the top of this page in the menu bar. 

Email (case-based consultation and support):

Whether advice can be provided depends on the specifics and particular subject matter of each individual case.

Please scroll to the end of this page to sign up for our newsletter. The newsletter focuses on energy companies and new trends in the energy sector. We look forward to welcoming you!