Algae farm in Mexico to produce ethanol in '09

Rather than squeeze algae for its oil, Algenol wants to turn each algae cell into a tiny ethanol factory.

The Maryland-based company said that business partner BioFields has licensed its technology and committed $850 million to build a saltwater algae farm in the Sonoran Desert in northwest Mexico. Production is scheduled to begin next year.

BioFields paid over $100 million to license Algenol's technology, Algenol CEO Paul Woods said Thursday. He said the ethanol produced at the farm will cost $1 less than today's gasoline, or about $3 per gallon.

Algenol's technology was first developed in the mid 1980s. When oil hit $50 a barrel in 2006, Woods stepped up efforts to commercialize it.

The company chose from a collection of 10,000 strains of algae and used molecular biology to enhance certain traits. Specifically, company engineers enhanced certain algaes' ability to make sugar and, through their enzymes, to ferment sugar into ethanol.

"Most algae have a really tiny ability to make ethanol, and we've enhanced it greatly," Woods said. "We take in sunlight, massive amounts of carbon dioxide, and we grow (algae) in what look like a huge soda bottle on its side."

There are a number of companies developing technology to grow algae and convert it into fuel, typically biodiesel. The algae is grown in tubes, plastic bags, or open ponds and then harvested and pressed for its oil. Some companies propose taking the leftover biomass and burning it or using it as animal feed.

Algenol's process is very different in that the algae are not cultivated. Instead, algae produce ethanol in gas form that is siphoned off from the bioreactor tubes and condensed to a liquid, Woods explained.

He claimed that the system can produce 6,000 gallons of ethanol per acre per year, far more than corn's rate of 370 gallons per acre per year or sugar cane's at 890 gallons per acre per year.

The Mexican site is located a few miles away from a power generation station. By pumping carbon dioxide from the station into the algae bioreactors, the saltwater algae farm can boost production to 10,000 gallons of ethanol per acre per year, he said.

Algenol is privately funded with just under $70 million and is not looking to raise more money.

Woods said that there are a number of sites in the U.S. that it hopes to develop that have a lots of sunlight and access to seawater.

"There are tons of CO2 being emitted, and we can take it all. There are lots of opportunities for good locations in the U.S.," he said.

Its process absorbs about 90 percent of the CO2 that is fed to the algae bioreactors, which are about 3 feet high and 50 feet long. Between 50 percent and 70 percent of the CO2 goes into ethanol.

One climate expert said that the technology holds promise, particularly because algae can produce much more ethanol than corn per acre.

"It has a lot of promise," said John Steelman, a program manager at nonprofit group the Natural Resources Defense Council, told Reuters.

But as with many new fuel ventures, it's hard to say how cost-effective it is or to measure the environmental factors. "We do not know if it's a great thing yet," Steelman told the wire service.

Updated at 10:45 a.m. PT to correct oil price to barrels.