Energy Investments in Algae and Biofuels in 2019

I have previously mentioned that biofuels will change the trajectory of the energy industry considerably, even though many people will refer to the fact that biofuels take up a lot of land to produce, and are not energy efficient because it take too much energy to produce them. This article will show that biofuels remains a suitable addition to the conventional fuel mix and will impact industries in the near future, in particular the airline sector as well as the transportation sector.

The large oil producers have invested large amounts of money trying to figure out the best ways to make biofuel from algae. As it has turned out, this is much harder to do then was initially thought due to the difficulty that algae has to be grown and that it is difficult to commercialize algae on an industrial scale.

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.

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.

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.

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.

For investments in algae and biofuels, I would use a two-fold strategy. One the one hand I would invest in start-up’s that show are promising future. I would invest in such start-up businesses as if I would want to buy the whole business, as a rule of thumb. Besides that, I would also invest in large oil companies that produce biofuels in case they develop a promising solution to market fruition, and they are the most likely firms that can mass-market such solutions and scale up quickly as it is very important to gain market share once one has found such a solution that is commercially viable.

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.

In my previous articles, I also talked about peak oil and the declining oil reserves worldwide. In these articles I had mentioned that it is increasingly difficult to extract oil, which means that the operational costs of finding, extracting, processing and delivery of oil to the end user is becoming more extensive. Once the price of oil crosses a certain threshold of let’s say 100 dollars per barrel of oil, it is far more likely that airlines among others will look for alternatives to kerosene. They will be first in line, other industries will follow along after a price ceiling has been reached, which in turn will effect which fuels are available as energy use. Other industries will have difficulties to continue their present energy use consumption patterns, such as the shipping industry which uses heavy oil, basically the residual from processing crude oil, to fuel their ships for container delivery. If there are fewer off-takers for benzene that will also impact on diesel engine usage over time. In fact, we are seeing cruise ships switching to gas-powered engines as it is widely believed that gas will stay with us for longer than petroleum, and that it is more environmentally-friendly.

For the foreseeable future, biofuel made from algae would offer a suitable alternative for the aviation industry. For example, the Dutch airline KLM has signed a long-term contract in 2018 for the use of biofuels, and will have 10 – 20% of its fuel needs met from biofuels in the future. One would expect other firms in the aviation industry to follow suit over time. Up to a certain percentage, this seems to be a reasonable option, although the temperature threshold for the fuel not to freeze is higher than if one would just use kerosene on its own. The transport sector would provide another alternative.

Disclaimer: This article is just meant to inform the reader of recent developments in the energy industry at large and to share knowledge and insights with a wider audience. 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 also see the IMPRINT (German: Impressum) and PRIVACY POLICY, which you can find at the top of this page in the menu bar.