We have fossil fuels today because a bunch of algae and other biomass sank to the bottom of dinosaur-laden swamps tens of millions of years ago, where it was compressed over time into its current form. Or something like that.

Crude oil, natural gas, and coal dominate the energy landscape of the modern world, and nowhere is that dominance more absolute than the transportation sector, which is almost entirely dependent on liquid petroleum fuels. While it looks increasingly likely that electric vehicles will grab significant market share in the coming decades, liquid fuels won't be coughing up the entire market anytime soon. That fact has encouraged many companies to pursue novel renewable fuels, with relatively little to show for it in terms of commercialized technologies.

While ExxonMobil (NYSE:XOM) is well aware of this recent history, it has maintained a long-term focus on one of biotech's holy grails: limitless volumes of drop-in algae fuels. Exxon has the money. It has technical prowess. It has time. Can the oil supermajor successfully use synthetic biology tools to commercialize algae fuels?

A small green car toy made of leaves and sitting on a wooden surface.

Image source: Getty Images.

A bold bet on the bioeconomy

ExxonMobil's ultimate goal is to commercialize a genetically engineered algae strain capable of producing economically viable renewable fuels and chemicals in large outdoor facilities. And it's taking practical steps to get there.

For one thing, it partnered with cutting-edge synthetic biology company Synthetic Genomics (SGI). SGI has a number of groundbreaking accomplishments under its belt. It created the first synthetic organism (descended from a computer program), discovered the minimal viable genome needed to boot up life (31% of the genes have unknown functions), and is even building a device that could synthesize microbes found on Mars from a transmitted radio signal (among other uses).

Put another way, SGI isn't some wishy washy start-up high on hype and low on execution. Instead, it's exactly what ExxonMobil needs, especially given the daunting hurdles on the horizon.

Photobioreactors in a lab full of green algae.

Image source: Getty Images.

That technical expertise has already paid dividends. In 2017 ExxonMobil and SGI announced they had discovered a way to make their algae strain twice as efficient at producing oil without affecting growth rates -- the best of both worlds, as past efforts to increase oil production has resulted in slower-growing organisms.

But as a reminder of the difficulty of predictably controlling biology, the breakthrough is still just a starting point. ExxonMobil and SGI remain a long way from a commercial-scale facility, although shareholders now have a date to circle on the calendar for the next step toward that goal: 2025.

That's when ExxonMobil and SGI believe they could have the "technical ability" to create a facility with 10,000 barrels per day of next-generation algae fuel. That works out to about 130 million gallons per year, which is equivalent to a large corn ethanol facility. Building an algal fuel facility is much more complex, though. Unlike ethanol that is produced under ideal conditions in sealed stainless steel tanks, the algae production process being developed will utilize open-air facilities that need to fight off contamination and a host of other concerns that remain unchartered territory for industrial algal cultivation.

A hood bench in a biotech lab.

Image source: Getty Images.

Long story short, developing the "technical ability" to create economically viable algae fuels is not the same thing as actually producing economically viable algae fuels. The first commercial scale facility is still over 10 years away -- and that's in the best case scenario.But the payoff for success would be almost unimaginable.

Let's assume that ExxonMobil and SGI can produce 10,000 gallons of fuel per acre per year, which is what a few other algae companies have targeted in the past. That works out to about 6.4 million gallons per square mile per year. At that level of production the technology could technically provide all 250 billion gallons of motor gasoline, diesel, and jet fuel consumed in the United States with about 40,000 square miles of production.

It sounds like a lot of land -- and it is -- but it's about perspective. The most important crude oil patch in the world right now, the Permian Basin, sprawls across 75,000 square miles in West Texas and eastern New Mexico. By 2021 the shale formation could churn out over 5 million barrels of oil per day, which would be equivalent to about 30% of total American transportation fuels consumption.

Microscopic photosynthetic factories won't be competing with the Permian Basin any time soon (and maybe not ever), but the potential goes to show why ExxonMobil is investing in biotechnology with an ultra-long mindset. After all, the company has a robust portfolio of refining infrastructure that it could use to process crude algae biomass into renewable fuels and chemicals. Swinging for the fences with outdoor algae cultivation sounds a lot better than potentially having to write-off a significant part of its refining asset base if future governments penalize carbon intensive petroleum-based products.

An old oil pump in the desert.

The Texas desert is full of oil. One day it might come from algae. Image source: Getty Images.

Next-generation renewable fuels remain elusive

It's not surprising that ExxonMobil (along with some of its supermajor peers) is pouring capital into next-generation renewable fuels development. The first technology to prove economically viable could forever change the future of energy for the entire planet. Of course, we're all still waiting for that first success after innumerable failures.

It might seem a little counterintuitive, but ExxonMobil is in the exact right position to deliver just such an outcome. It has ample cash flow to divert to unproven industrial biotech processes for as many years as it takes to prove successful, so long as progress is made along the way. It's also partnered with a leading company in the field.

So, from a long-term perspective, it's encouraging that ExxonMobil is slowly making progress toward its goal of commercializing algae fuels. But it's also important to remember that the partnership with SGI is still in the early stages of development, and that major technical hurdles remain. That said, the ongoing project is as good a bet as any on algae fuels, but you might be waiting until the 2030s before the outcome is determined.

Maxx Chatsko has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.