Algae oil is now the most promising source of alternative energy on the planet. But don’t just take my word for it– the world’s biggest energy player agrees.

ExxonMobil is the Big Oil player that’s causing all the fuss. The company has thrown $600 million into a research partnership to study the potential of algae oil. Now, ExxonMobil will team up with human genome researcher Craig Venter in an attempt to make algae oil a more viable fuel source.

“There has been so much hype and hope about the potential for algae that this announcement should act as a reality check for everyone,” Venter told the Financial Times.

Up until this point, the algae oil industry was rarely mentioned in mainstream media sources. Yet it remains one of our most viable alternatives to conventional fossil fuels.

The argument is simple: Algae are the fastest growing plants in the world. And algae consume more carbon dioxide than any other plants. As they grow, algae produce lipids, or vegetable oil.

The math is greatly skewed in favor of algae. One acre of corn can yield about 28 gallons of oil in one year. In more tropical regions, an acre of palms can yield about 6,700 gallons of oil per year. An acre of algae can yield anywhere between 20,000-100,000 gallons of oil per year.

This tremendous potential exists because of a lightening-fast growth cycle. An algae plant can completely reproduce up to six times per day. And we all know it takes corn all summer to mature.

Of course, ExxonMobil’s new partnership does not mean we will be filling our tanks with pond scum biodiesel just yet. Developers will still need to tackle genetic engineering and oil extraction issues…

But ExxonMobil’s leap into the algae oil market effectively legitimizes the industry. But as you probably have already guessed, the budding algae oil industry offers very few public companies in which you can invest. However, there are a few compelling names you’ve probably never heard of…

Here are two algae penny plays you might want to watch:

PetroSun Inc. (PINK SHEETS: PSUD): Last month, this diversified energy company signed an agreement with a town in Arizona to develop a algae-to-biofuels wastewater pilot program…

Green Star Products Inc. (PINK SHEETS: GSPI): Green Star is involved in the business of environmentally friendly lubricants and fuel additives, as well as algae fuels and other biodiesels. Recently, the company has also announced plans to build electric vehicles.

Several private startups and partnerships are worth watching, too…

We’ve mentioned Sapphire Energy before. It’s scored more than $100 million in private financing — including a chunk from Cascade Investment, a holding company owned by Bill Gates.

Then there’s Algenol Biofuels. This company has partnered with Dow Chemical on a project that would use algae as a vehicle to harvest CO2 for ethanol.

“The ethanol would be sold as fuel,” reported The New York Times, “But Dow’s long-term interest is in using it as an ingredient for plastics, replacing natural gas. The process also produces oxygen, which could be used to burn coal in a power plant cleanly, said Paul Woods, chief executive of Algenol, which is based in Bonita Springs, Fla. The exhaust from such a plant would be mostly carbon dioxide, which could be reused to make more algae.”

The company’s target price is $1 a gallon — incredibly cheap compared with corn-based ethanols. A breakthrough like this one could put the U.S. on the road to energy independence at breakneck speeds. We’ll keep you posted…

Best,
Greg Guenthner

July 23, 2009

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