If Algal Oil Costs $1 per gallon, How Can They Charge $2 per gallon for Crude Oil? Price Ceilings

We are approaching the day that all oil sheikhs and tycoons have been dreading -- the day when synthetic biofuels are cheap enough to put a price ceiling on what producers and traders can charge for crude oil. DARPA recently announced that it is only months away from producing algal oils for only $1 $2 a gallon -- "headed towards" $1 a gallon.

The Defense Advanced Research Projects Agency (DARPA), an office of the US Department of Defense, will soon be producing jet fuel made from algae at a price comparable to that of petroleum-based fuel, the UK Guardian reported on Saturday. DARPA could be months, not years, from producing an algal biofuel that is price-competitive with fossil fuels. According to Barbara McQuiston, special assistant to energy for DARPA, “Oil from algae is projected at $2 per gallon, headed towards $1 per gallon.”

The oil produced by algae still needs to be refined into jet fuel, which can be done while still keeping the price under $3 per gallon. McQuiston said an additional refinery will come on line in 2011 and be capable of producing 50 million gallons of algae-based jet fuel a year.

Research into algal biofuels has received massive funding from the US government and Exxon, but DARPA’s breakthrough in achieving a cost-effective method of production still came as a surprise. The director of the Algal Biomass Association, Mary Rosenthal, was taken aback by DARPA’s accelerated timeline and said she expected algal fuels to become competitive “in the next two years.”

DARPA’s work is part of the US military’s efforts to reduce costs and improve the flexibility of its supply chain by relying more on renewable sources of energy. The military aims to get half its energy from renewable sources by 2016, and the US Air Force wants to test 50-50 blends of biofuel and petroleum-based fuel by 2011. _HeatingOil

DARPA is not a for-profit corporation, so it is unclear how long it would actually take for their process to be scaled to commercial size, for the benefit of civilian customers. As stated above, algal oil must be refined further if it is to be used as jet fuel or gasoline.

Algal oil can be used with minimal refinement in diesel engines. Blends of algal-diesel and petro-diesel would likely hit the market first, with gasoline-from-diesel taking somewhat longer to hit the market.

According to Al Fin chemical engineers and energy analysts: Realistically, ten years is a reasonable timeline for algal fuels to begin to make an impact on global fuels markets -- despite DARPA's cheery announcement. In twenty years, microbial biofuels and biomass biofuels should account for 30% of the liquid fuels market.