Geoffrey Styles, writing in the Energy Tribune, writes:
“In spare moments during the last week I’ve been mulling over the implications of ExxonMobil’s announcement of a very large investment in research and development on producing biofuels from algae, in collaboration with a leading biotech firm, Synthetic Genomics, Inc. While the reported figure of $600 million wouldn’t buy much in the way of actual deployment, it could sure pay for a heck of a lot of R&D. The joint conference call about the announcement emphasized that the companies will be pursuing several possible technological pathways, though all appear to be focused on producing biofuel from algae continuously, rather than in a batch mode more analogous to farming. That would certainly increase the attractiveness for Exxon, which after all operates some of the world’s biggest continuous production processes, in the form of its oil & gas fields, refineries, and chemical plants. The timing of this announcement is also interesting, coming just a few weeks after the US House of Representatives passed the first cap & trade bill to make it through either chamber of Congress.”
Styles is right on with his analysis. There are lots of other renewable energy methodologies that hold the prospect of more immediate revenues than algae-based biofuels, but none of them have the potential economics of scale offered by algae.
In addition to the economies of scale offered by algae, though, is the scale required for an investment by ExxonMobil (NYSE: XOM) to be meaningful. $600 million might mean alot to you and me but it’s nearly a rounding error to ExxonMobil. Consider, for example, that in the quarter ended March 31, 2009 XOM generated top line revenues of $64 billion, with a bottom line of roughly $4.7 billion. And that was a bad quarter, nearly 50% less on both the top and bottom lines in comparison to the quarter ended June 30, 2008 (revenue of $138 billion and earnings of $11.4 billion).
Algae not only has the potential to produce the quantities of fuel that ExxonMobil would need to keep pace with its production, but its investment was only 1% of its revenue for the most recent quarter. At that scale, ExxonMobil puts itself on the Algae-fuels map in a very big way but without making a material dent in its quarterly bottom line. If it pays off, great. If it doesn’t, no one will remember.