Defense Department says algae oil production costs over $20, must reach $3 or less to be viable

The US Defense Department is estimating that the current production cost of algae oil exceeds $20 per gallon. The Department is exploring the potential of algae oil as a jet fuel source, but said that they need the cost of the oil to get down to $3 per gallon.

The US Department of Energy recently partnered with Chevron in a research effort to develop higher-yield strains of micro algae. The Defense Advanced Research Projects Agency is working on a project with Honeywell, General Electric and the University of North Dakota.

In Hawaii, Royal Dutch Shell and HR Biopetroleum will construct an algae-oil production facility to produce feedstocks for biodiesel.

The companies created a joint venture, called Cellana, to construct a pilot plant in Hawaii, but the production capacity and location was not disclosed.

Business Week published a roundup on developments in algae-based biodiesel, highlighting startups by Chevron, Honeywell and Boeing, as well as the technical challenges of producing algae in a controlled production environment and developing a commercially viable process to extract the oil.

The report quoted a prediction by Martin Tobias, CEO of Imperium Renewables, that he expects the cost of algae oil to fall from as high as $20 per gallon today to $1.70 by 2011, with production capacity reaching 100 Mgy by that point.

The report focused on the growing pains at algae farms, citing the GreenFuels demonstration of algae oil production that was shut down after two weeks over the summer because of problems in controlling the growth rate of the algae.

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