Exxon to try to develop biofuel from algae

LONDON/HOUSTON (Reuters) - Exxon Mobil Corp will invest $600 million over the next five to six years on trying to developing biofuel from algae, even though the oil major has said renewables will be only a small part of global energy supply.

Exxon, placing its largest financial bet on renewable fuels, is forming a research and development alliance with Synthetic Genomics Inc, a privately held company that focuses on gene-based research, the company said on Tuesday.

The project, which would cost billions to fully develop, is in its initial stages, so commercially viable biofuel made from algae would be many years away, Exxon told reporters on a conference call.

"We need to be realistic," said Emil Jacobs, vice president of research at Exxon. "This is not going to be easy, and there are no guarantees of success."

Spending on the algae fuels project will require only a fraction of Exxon's annual capital budget of $25 billion to $30 billion, but it will be the world's largest biofuels development project of its kind, said Craig Venter, genome pioneer and founder of Synthetic Genomics.

Exxon's algae research will not likely silence critics who have argued that the oil major needs to sharpen its focus on renewable and cleaner-burning fuels, but it is a step in the right direction, said Fred Burke, president of Johnston Lemon Asset Management.

"I think it's terrific," Burke said. "It indicates to me that they are reaching out and trying some alternative ideas when frankly I didn't have the idea that they were doing that before."

Even though renewable energy sources are forecast to show rapid growth, crude oil, gas and coal will meet nearly 80 percent of global energy needs through 2030, Exxon said in its latest energy outlook.

BUILDING IN CALIFORNIA

As one of its first steps, the Exxon and Synthetic Genomics plan to build a research facility in San Diego, the companies said.

Other companies, including Europe's largest oil company by market value, Royal Dutch Shell Plc, are also researching the possibility of generating motor fuel from algae, but all parties agree a commercial solution is years off.

Exxon said it reviewed the viability of all other types of biofuels and determined the algae project was best after considering factors including environmental performance and economies, Jacobs told reporters.

Biofuel from algae would have a key advantage over existing biofuels in that it would not compete with food crops for land, thereby meeting energy needs without pushing up food costs.

To make biofuel from algae, sunlight and a large source of carbon dioxide would be needed. Exxon said it could source its carbon dioxide for the research product from power plants, natural production or refineries.

In the past, Exxon has been skeptical about green energy such as wind, biofuels and solar power and has supported research that questioned the scientific basis of man-made climate change.

The company also fended off proposals that it invest in renewable fuels at an investors' meeting in May.

Shares of Exxon rose 25 cents, or less than one percent, to $65.95 in afternoon trading on the New York Stock Exchange.

(Additional reporting by Ajay Kamalakaran in Bangalore; Editing by Gerald E. McCormick and Steve Orlofsky)