Dispatch from SSC Intern Paul Turaew
Not too long ago, the chairman and chief executive of Exxon Mobil, Rex Tillerson publicly referred to ethanol as “moonshine.” Now, according to the New York Times, and only a couple years later, Mr. Tillerson’s company is investing $600 million to produce fuels from algae — organisms in water that range from pond scum to seaweed. Currently, $300 million is allocated for “in-house” studies while another $300+ million may go to its scientific research partner, Synthetic Genomics “if research and development milestones are successfully met.”
In order for such new technology to prosper – a large amount of capital is needed for research and development. Environmental organizations like Greenpeace recognize this but remain skeptical. Watchdog groups are unsure if companies like Exxon (that profited so greatly from petroleum) are serious about their investments or are merely paying “lip service” to the new movement towards sustainable energy.
Regardless of Exxon’s true intentions, there is a desire for the investment to pay off. Currently, approximately 9 percent of America’s liquid fuel supply comes from biofuels — most of it corn-based ethanol. By 2022, Congress mandated that biofuel levels reach 36 billion gallons. According to Exxon, unlike the questionable feasibility of corn-based ethanol, algae-based fuel may prove promising as it has molecular structures which are similar to petroleum products, including gasoline, diesel and jet fuel. Specifically:
Photosynthetic algae are very efficient at using sunlight energy to convert carbon dioxide into cellular oils, or lipids. These can be processed into fuels and industrial chemicals using existing refining techniques.
This news story, although portrayed as an exercise in management and investment strategy points out the benefits of established industries partnering with burgeoning technology and new businesses. Established players may be rewarded with a solid return on investment and the ability to gain expertise in a new sector. Meanwhile, the newer companies will get the opportunity (via much needed capital) to better research and develop its technology, ideas, etc. Not surprisingly, this new partnership came at the behest of responsible government policy.
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