In the nearly two years since we first announced our alliance with Synthetic Genomics Inc. (SGI), we’ve made good progress in our research aimed at developing next-generation biofuels from photosynthetic algae.

Basically, we are working to identify and develop strains of algae that could produce refinery feedstocks for the production of transportation fuels. We also need to design and engineer the systems to do this at scale. It’s a big program, and it will take time: We expect to spend more than $600 million on the program over the next decade, if the research and development milestones we’ve identified are met.

In July 2010, we took a significant step forward in our research program with the opening of a greenhouse facility at SGI’s headquarters in La Jolla, Calif.  The greenhouse is enabling the next level of research and testing, and it complements ongoing work in the laboratory, allowing us to grow algae in an environment that better reflects real-world conditions.

I’m often asked exactly what type of fuel we’re talking about.  As far as products to expect from this program, our intent is to make hydrocarbons that look a lot like today’s transportation fuels. Here’s how we envision this working:

We know that certain types of algae produce bio-oils. The challenge is to find and develop the algae strains, and the production systems, that can produce bio-oils at scale with an attractive economic return. The ultimate goal is to have algae bio-oils processed in our refineries to supplement supplies of conventional gasoline, diesel, aviation fuels, and marine fuels.

These fuels would meet the same specifications as today’s products derived from petroleum.  This is important because it helps ensure the biofuels are compatible with existing transportation technology and infrastructure.

How big could this be? At this stage, it is impossible to predict what percentage of global transportation demand could be met with algae biofuels.  But our intent is to make algae an economically attractive and competitive source of fuel for transportation. If we can achieve that goal, the market demand should lead to increased use.

Another question I often get is why we decided to invest in algae versus other biofuels, such as corn-based or sugar-cane-based ethanol.  One reason is that algae can be grown using land or water that is unsuitable for plant or food production.   In other words, unlike many other biofuels, algae biofuels do not compete with the food supply.  Algae can yield more biofuel per acre than plant-based biofuels – currently 2,000 gallons of fuel per acre, per year. That’s almost five times more fuel per acre than sugar cane and almost 10 times more fuel per acre than corn.

The fact that algae production won’t compete for freshwater resources is also a key part in the decision.  We want to use salt water or brackish water to make the best use of the natural environment for the algae – there are a lot of places in the world where sunlight, salt water, and carbon-dioxide are in abundance.

And, algae consume CO2 as they grow, so algae biofuels could help mitigate greenhouse gas emissions.

While algae could offer great potential as a transportation fuel, there are a number of challenges before us. First, there are more than 20,000 algae strains.  We need to learn which of these strains can achieve the greatest production of bio-oils at the lowest cost.

Second, as we make advancements on selecting the right strains, we also need to test them in several production systems.  That could be an open bioreactor (a pond) or a closed bioreactor (typically transparent tubes or something similar). Each has pros and cons, and at this point we don’t know which will work best. Integrating biology and engineering is the key.

If we do find the right strains and identify the right production system, there’s still another challenge ahead – scaling up the production process.  It will take large, integrated systems to combine all these steps into a full scale, economic operation to produce, upgrade and commercialize biofuels from algae.

These challenges are significant, and overcoming them will take a considerable investment of time, money and scientific expertise. But we believe it’s an effort worth making, particularly given algae’s potential to help enhance the world’s transportation fuel supply and assist in reducing greenhouse gas emissions.

So, there’s still a lot of work ahead. The good news is that we’re making progress.  Since ExxonMobil and SGI announced the program in 2009, researchers have isolated and engineered a large number of candidate algal strains and developed growth conditions under which these strains could be made more productive.  We’ve identified and tested some of the preferred design characteristics of the different production systems. And we’ve begun life cycle and sustainability studies to assess the impact of each step in the process on greenhouse gas emissions, land use and water use.

The next major milestone in the program, expected later this year, is the opening of an outdoor test facility.  Stay tuned – and please keep your questions and comments coming!

One year has passed, and I’m excited to say we’re entering the next phase of our program. Today, we announced the opening of a new state-of-the-art greenhouse facility at the SGI headquarters in La Jolla, Calif.  The greenhouse will be home to the next level of research and testing in our algae biofuels program.  SGI and ExxonMobil researchers are already using the facility to test whether large-scale quantities of affordable fuel can be produced from algae.

The greenhouse is an important component of the program. It gives researchers more realistic conditions for algae production, compared to an indoor lab. In the greenhouse, scientists will look at different growth systems for algae, such as open ponds and closed photobioreactors. They will also compare different types of algae, including both natural and engineered strains, and test them in varying light levels and temperature conditions to find the ones that are most productive. And, they will research other aspects of the algae fuel production process, including harvesting and bio-oil recovery operations. (Our algae brochure has an overview of the production process if you’re interested.)

Of course, this research won’t happen overnight. It could take as long as 10 years for algae biofuels to potentially reach the scale needed to make an impact on fuel supplies. In the meantime, we’ll continue to scale up our facilities and research – including a larger, outdoor test facility anticipated in 2011 – to test this promising alternative fuel source that could help meet our growing energy needs.

To learn more about the greenhouse and the progress we’ve made in the past year, check out our press release. You can also read a Dow Jones article about the greenhouse opening here.