Shell starts algae biodiesel research site in Hawaii

Royal Dutch Shell, the oil giant, is to fund a project in Hawaii to grow algae that can be converted into biodiesel fuel.

Through a collaboration with HR Biopetroleum, a tiny government-funded start-up on the Hawaiian island of Kona, Shell has formed a new company called Cellana that will build a facility to demonstrate the commercial and technical viability of algae as a source of biodiesel. A 2.5-hectare site is being built to locate seawater ponds to grow algae, from which vegetable oil will be extracted and then converted into the fuel.

Dr Graeme Sweeney, the head of future fuels at Shell, said that in conjunction with completing that site it will also begin the construction of a separate 1,000-hectare site which will be crucial to evaluating whether algae, long seen as a potential source of alternative fuels, is economic when scaled up to a commercial level. If the results are encouraging, the next step would be to build a 20,000-hectare site.

Algae's potential is not new. The US Department of Energy began researching it in the 1970s before abandoning it in the mid-1990s, churning money into alternatives such as ethanol.

Yet amid near record-high oil prices, fuels derived from other plant sources such as palm oil and rapeseed have been attracting greater attention. The focus on such fuels has been criticised, however, for driving up food prices and generating massive carbon emissions due to the energy required to convert them into fuel.

Biofuels comprise 1 per cent of global transport fuel consumption. Driven by European and US government targets, Wood Mackenzie expects this to rise to between 9 and 10 per cent by 2020.

Algae is seen as one of the least-proven technologies. "Algae is at the far end of biodiesel. It is one of the 'out there' concepts," said Matthew Partridge, the head of global biofuels study at Wood Mackenzie, the research organisation. "But if biodiesel is going to become a reality in the long term, we are going to have to move up the technology curve. Someone has got to make the investment to do that."

Shell declined to say how much it was investing in the project. Environmentalists have accused oil companies of using such projects, always eagerly publicised, to burnish their green credentials when they are really just small gestures that receive a paltry fraction of the billions of industry profits. Last month, Shell invested in Codexis, an American company researching catalysts to aid biofuel production.

It is unclear at what level the oil price must be for algae to make economic sense, but most analysts assume it is much higher than today's level. "The viability price is really high," said Mr Partridge.