Ethanol Producer Bets On New Production Method

Paul Woods traces the origins of Algenol Biofuels to his college days in the mid-1980s, with the idea of alternative energy sustained by memories of the oil embargo of the prior decade.

At around that time, gasohol started taking root in the U.S., but then it quickly faded as oil prices fell.

But Woods stayed at work on the idea of using algae to produce ethanol. Along the way, Woods managed to build up and sell his natural-gas company, United Gas Management, and channel those resources into algae. He formed Algenol in 2006 along with Craig Smith and Ed Legere.

Now, armed with patents, several test facilities around the world, and some $70 million in private backing, Woods is targeting his first large-scale ethanol production facility with output that may rival that of some of the category's largest U.S. players.

Algenol inked a partnership with BioFields, which has committed $850 million to build an industrial-scale ethanol facility in Mexico on 102,000 acres of desert located near the Pacific coast and not far from Cabo San Lucas.

"We don't use farm land, we don't consume any food and [we use] no fresh water," reported Woods, who has said hopes to bring the plant on line by the end of next year. "It's time to focus on California, Texas and Florida. We want to have a major plant on U.S. soil. Cheap energy is a matter of national security."

Woods holds a half-full plastic bottle of Gatorade sideways to illustrate the functioning of the firm's 5-feet-by-20-feet plastic holding tanks. Using a patented algae, Alegenol fills each tank with seawater and places the water-based plant inside.

As the algae grows, Alegenol will tap into carbon dioxide from a nearby power plant and funnel it into the tanks. The algae takes the gas and converts it into oxygen and evaporated alcohol, which is then removed and concentrated for use as fuel.

Unlike other algae players that make diesel oil by processing algae itself, Algenol doesn't spend time or energy removing the algae. It uses the ethanol vapors that the plant emits.

Algenol forecasts sales from the Mexico plant by the end of 2009 at price levels comparable to other U.S. ethanol makers. It says the plant will have a capacity of 1 billion gallons per year, much of which will be transported by ship to Mexican oil refineries nearby to be blended into gasoline.