Is Big Oil warming at last to the notion of an alternative-energy future?
So say some analysts who are pondering Exxon Mobil Corp.'s recent moves. Breaking from years of steadfast commitment to fossil fuels, the behemoth has announced big investments in electric cars, unconventional natural gas and algae-based biofuels (Greenwire, July 14).
"I think they see changes to the energy system coming over the next decades," said Michael Webber, an energy expert and engineering professor at the University of Texas. "It's pretty transparent that the energy field will be different 30 years from now. They're an energy company, so they had better be prepared than to wait."
The Exxon announcements have come rapidly this summer after years of rejecting pleas from environmentalists, legislators and shareholders to invest in alternative-energy technologies and commit to addressing climate change.
Just six months ago, Exxon Mobil CEO Rex Tillerson said his company was not investing in alternative-energy efforts because "we think these technologies are old. If there is going to be a fundamental shift" from fossil fuels, he said, the technology "hasn't been discovered" (Greenwire, Feb. 17).
But in recent weeks, Exxon has tossed about $500,000 into an electric car-sharing program in Baltimore and participated in development of unconventional natural gas plays in Canada. On Tuesday, it announced a $600 million partnership to develop next-generation biofuels from algae.
Exxon Mobil spokesman Rob Young said the timing of the announcements is circumstantial. Each comes, he said, after significant internal research. "This is not something that happened overnight," he said. "The announcement and collaboration come after a number of years of work."
Analysts and experts are buzzing about a larger impact on major energy companies.
"This is very significant. I put Exxon's move as groundbreaking as Wal-Mart and GE's sustainability strategies," said Will Sarni, CEO of energy and environment consultant Domani. "One could argue -- maybe in hindsight -- that this is really the start of the second generation biofuels industry."
Certainly, alternative-energy advocates are thrilled, seeing Exxon's investment in algae biofuels spurring additional investments and faster movement toward such fuels' commercialization.
"I think the fact that Exxon -- which has a history of openly opposing biofuels and saying they don't work -- is moving into algae biofuels sends a strong signal to the investment community and technology community that there is a paradigm shift going on," said Brent Erickson, senior vice president for the industrial and environmental section at the Biotechnology Industry Organization trade group.
Mary Rosenthal, newly appointed executive director of the year-old Algal Biomass Organization, agreed. "This is definitely a shot in the arm for the industry," she said. "It shows that traditional oil companies see next-generation biofuels as a positive horizon."
To be sure, Exxon Mobil is not the first oil company to invest in algae-based biofuels, but its investment is significant because of the size and the company's historical opposition to biofuels like ethanol. Royal Dutch Shell PLC, Chevron Corp. and BP have all recently announced algae biofuels partnerships or research ventures. And Dow Chemical Co. last month launched a pilot project with Algenol to produce ethanol from algae (Greenwire, June 29).
"Algae holds more potential than traditional biofuels, and firms are starting to realize that," RBC Capital Markets energy analyst Sandeep Ayyappan said. "If some of the scale efficiency issues are resolved, then algae could become a very competitive biofuel, especially since it absorbs CO2, as well, and could be eligible for offset credits."
In fact, climate legislation is likely a key driver in oil companies' decisions to invest in alternative-energy technologies.
"Climate change legislation that is now moving through the House and Senate ... is inducing companies to think outside the box on their sustainability profiles, so they can meet possible cap-and-trade requirements in the future," Erickson said.
Fluctuating crude oil prices are likely another key driver, he added.
"I think that the price of oil -- even while the economy is down -- is still high and quite volatile," Erickson said. "People are still looking for alternatives."
Steve Gluck, head of Dow Chemical's algae technology program, agreed. "The squeeze on oil prices last year," he said, "stimulated a lot of investment from the venture-capital side."
To be clear, Exxon Mobil is not turning into an alternative-energy company. Its algae biofuels investment, for example, represents a little more than 1 percent of its 2008 net income and a little more than 2 percent of its 2008 capital expenditures. But experts say the investment is significant nonetheless.
UT's Webber said Exxon's $600 million investment is an order of magnitude larger than the amount spent by the federal government on algae biofuels in the past decade.
And Webber said Exxon is in the biofuels game to make a difference. "This is not a [public relations] stunt, because Exxon generally doesn't care about PR -- and I mean that in a loving way," he said. "For Exxon to get involved, I think they're serious. Primarily because of the amount of money, I think they're serious."
Said Greenpeace research director Kert Davies, "It's real money."
"Real money" is what algae biofuels needs, its leaders say.
There are scientific and economic hurdles to scaling up algae biofuels production. Among them are determining the best organisms to use, figuring out how to grow them and discovering the best technology to separate oil from algae.
"The algae biofuel industry needs to bring technologies to scale," Sarni said. "VCs [venture capitalists] will not be the ones to do this, but companies like Exxon will. If Exxon pulls this off, they could jump ahead of their competitors."
Exxon Mobil's technical expertise will also likely make it an asset for the sector, Webber said.
"Exxon operates differently than the others. They're an energy company, and they like to tackle problems that require engineers," Webber said, adding that the company is likely further along in advancing the technology than expected.
Senior reporter Mike Burnham contributed.