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Shell goes to paradise in search of cheap biofuel

One of the survivors in the oil giant’s slimmed-down green drive

Danny Fortson: March 22, 2009

The Hawaiian island of Kona, a volcanic stump with white sand beaches and aquamarine waters in the middle of the Pacific, has long drawn adventurers and paradise-seekers. It was here that Captain James Cook was stabbed by islanders and left to die face down in the surf.

More than two centuries on, new pioneers are stalking its shores. Last week a small company backed by the oil giant Royal Dutch Shell provided the first batch of a locally made oil to the American government for testing as aviation fuel. It has the combustion properties of fuel derived from crude oil but it is made from algae.

The advantages over conventional biofuels are clear – it is not made from crops grown on agricultural land so it cannot be blamed for driving up food prices or using scarce fresh water.

It sounds almost too good to be true. It probably is. The technology to convert algae into usable fuel on a large scale is still at least a decade away, and it is unclear if it will ever be practical on a large scale.

Shell refuses to say how much it has invested in the project. Nonetheless, it has put the full weight of its PR machine behind this and the handful of other renewable technologies it is developing, giving it a nice green sheen even as it deepens its involvement in controversial areas such as the Canadian tar sands.

The company has had to deal with a $100 drop in the price of oil and lower demand for its products, so it is cutting spending and has pulled out of several renewables sectors altogether. Chief executive Jeroen van der Veer confirmed last week that the company will stop investing in hydrogen technologies and wind power – it has pulled out of all its British projects in the past year. Solar has gone the same way. That leaves clean coal technology and “second generation” biofuels such as algae as its primary focus.

The fast-growing algae are native to the seas off Hawaii – cultured in tanks fed with sea-water in a pilot plant run in collaboration with the local firm HR Biopetroleum. If its scientists can perfect the algae-to-oil process, Shell says it will fund an industrial facility of 20,000 hectares, built by Cellana, the Shell-HR Biopetroleum joint venture, on coastal land unsuitable for farming.

A facility of that size could produce 16,000 barrels of oil equivalent a day. At that rate, seven such plants would be needed to generate as much oil as one reasonably productive offshore platform. The good news is that algae can double their mass several times a day using sunlight alone and the supply would never run dry.

On the Kona coast, Cellana has already built some photo-bioreactors – essentially high-tech greenhouses that use natural light and a carbon-dioxide injection system to speed up natural growth rates. The company is testing new strains of the plant to find the most oil-rich and fast-growing varieties. The conversion process is similar to that for other biofuels: the algae are dried and broken down into oil and protein.

The process is still in development. Gordon MacManus, an analyst at the research firm Wood Mackenzie, said that, as a biofuel source, algae hold great potential but the technology is at a “very early stage”. He said that it could be “more than a decade” before it is commercially practical.

It is one of several “second-generation” biofuels that could one day overtake Shell’s other efforts in making biofuels from crops. It has recently increased its stake in Codexis, an American group that develops enzymes to improve the process of creating ethanol from lignocellulose, the woody part of plants, that another Shell partner Iogen is working on.

Such fuels are many years from making it to the market – if, indeed, they make it at all. And Shell leaves most of the scientific challenges to its partner organisations; it provides the cash and research support. Meanwhile, the company remains one of the world’s biggest providers of often-maligned “first generation” biofuels such as corn-based ethanol.

Just as the first drum of algae-produced oil was flown from Kona to America’s Defense Advanced Research Projects Agency, Shell said that it was abandoning renewables, except for some biofuels.

When the announcement was made last Tuesday, critics accused Shell of a sell-out. But the company said it was responding to a change in the economic climate and the new reality that crude oil is now about $100 a barrel cheaper than a year ago.

Shell was never that green in the first place. It has the largest investment programme of any private enterprise in the world, spending $90 billion (£62 billion) in the past five years on projects ranging from the Gulf of Mexico to Iraq. Over that same period it gave back $68 billion to shareholders through dividends and share buybacks.

By comparison, its investment in alternative energy is tiny, amounting to only $1.7 billion – less than 2% of its total spending over the same five years. That investment programme is about to dwindle further. Van der Veer’s message last week was straightforward: it’s not that renewables don’t make money, it’s that they don’t make enough. “We do not expect [renewables] to grow much from here, due to portfolio fit and the returns outlook compared with other opportunities,” he said.

Far from abandoning renewables, Shell said, it is simply narrowing its focus on the areas where it has the most expertise and can effect the most change.

Environmentalists fear that Shell’s efforts to go green could end up like Captain Cook on the shores of Kona – left to die in the surf.

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