Exxon Discovers What Solazyme Already Knew

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Several years ago ExxonMobil (NYSE: XOM  ) and Synthetic Genomics (SGI) attempted perhaps the largest and most ambitious photosynthetic algae project in history. The goal: grow algae in large-scale, open runways or ponds using nothing more than carbon dioxide and sunlight. Oh yeah, and bring algae-based fuels to cost parity with petroleum fuels by 2019. Exxon played the role of financier -- cutting checks totaling $100 million to date with plans for an additional $500 million -- while SGI played the role of world-renowned and crazy-but-onto-something synthetic biology firm. 

The two scoured the globe (literally) for naturally occurring algae strains, or wild-type strains, in hopes of finding one with commercial potential. Unfortunately for those wishing the project to success, the partners announced that wild-type photosynthetic algae just didn't produce enough feedstock quickly enough for economical products -- even with minor changes to their genomes. The two will now utilize synthetic biology to realize their goals. Ironically, Solazyme (NASDAQ: TVIA  ) discovered these very same pitfalls over one decade ago. So how did these companies not see failure coming?

Told you so
Before you think "I could have told them that and saved them $100 million", you should know that the Exxon-SGI project was really a mining operation above all else. The head of SGI is none other than Dr. J. Craig Venter, who famously led the privately funded arm of the Human Genome Project and created the first completely artificial living organism. So while the project itself failed to bring us algae-based fuels by 2019, Venter now owns a treasure trove of diverse genetic material for building a successful microbe to get the job done. This was a major goal all along.

In the early days of Solazyme, founders Jonathan Wolfson and Harrison Dillon tried their hand at open pond technology. They quickly learned that would be a difficult endeavor and switched their focus from photosynthetic algae to heterotrophic algae, which grow in the dark by fermenting sugar. Imagine being the venture capitalist at that meeting ("yeah, so we're going to change everything")! The company also employs heavy doses of genetic engineering to alter the metabolism of its microbes to produce the numerous tailored oils of its platform.

Why didn't Exxon and SGI employ this from the beginning? Perhaps they were looking for the quickest route to commercialization (engineering a microbe requires more overhead), but they now presumably have an advantage in terms of genetic tools to work with. 

What this announcement doesn't mean
It is important not to take the wrong thing away from this announcement. Some news outlets are failing to make the distinction between wild-type algae and genetically altered algae, instead claiming that algae-based fuels are dead. That simply isn't true.

Companies such as Algenol (photobioreactor bags), Sapphire Energy (open ponds/runways), and Joule Unlimited (photobioreactors) are just some of the firms making progress. Algenol recently hit ethanol yields in excess of 9,000 gallons per acre (link opens PDF) -- compared to 400 gallons for corn and 800 gallons for sugar cane on the same basis. Sapphire Energy is churning out Green Crude at the world's first commercial demonstration facility, which will initially produce 1 million gallons of finished petroleum products per 100 acres. And Joule Unlimited wields the Helioculture platform (my favorite industrial biotech platform) that combines photosynthetic microbes with modular systems. That should allow the company to achieve the scale of an open pond with the finesse of a closed bioreactor. 

Solazyme's foresight years ago is now allowing it to reap significant benefits, but that doesn't change the fact that photosynthetic technologies remain the Holy Grail of chemical production. Here is how the two compare:

Attribute or Potential Attribute

Photosynthetic Algae System

Heterotrophic Algae System

Scale boundary

Virtually limitless

Bioreactor size, supporting equipment size/efficiency

Control over growth

Difficult in open ponds/runways; Easier in photobioreactors but size limited

Very good control over growing environment

Production per acre

Very high

Higher than traditional agriculture, but lower than photosynthetic algae

Contamination risk

High (major current drawback)

Easier to manage in bioreactor

Production cost

Very low (potentially zero or negative)

Lower than petroleum or agribusiness chemicals, but higher than photosynthetic algae

Capital cost

Very high for open ponds/runways, Low for photobioreactors

Medium and more predictable

Just as Exxon sees the ridiculous potential of photosynthetic algae, agribusiness giants see the potential to boost their top and bottom lines with Solazyme's more predictable heterotrophic technology. Bunge (NYSE: BG  ) owns half of the 100,000 metric ton facility being constructed between the two in Brazil as well as half of the 200,000 metric tons being planned elsewhere worldwide. Why sell sugar or ferment it into ethanol when you can ferment it into higher value chemicals being developed by Solazyme? Similarly, why drill for expensive and increasingly heavy crude oil when you can grow sweet crude at low cost with waste carbon, wastewater, and free sunlight?

Foolish bottom line
Exxon and SGI will go back to the whiteboards in their attempts to commercialize their sun-loving algae. The announcement isn't as much of a failure as you may think, although it is true that we will not have algal fuels from the two by 2019. However, society could have algal fuels from Solazyme by 2019 -- even if that isn't its priority right now. The company is getting along just fine in closed systems and currently building 125,000 metric tons of annual commercial-scale capacity with an additional 325,000 metric tons on the table with various partners. Perhaps Exxon should have pledged $600 million to Solazyme. At least it would have had something to show for it.

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 05, 2013, at 2:39 AM, EmFetch267 wrote:

    Nice article maxx! It seems premature to believe exxon and sgi now have an advantage in genetic tools though.

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