Fuel the World

Fuel the World

Paul Woods has spent two decades working on a way to mass produce ethanol from seaweed. Production starts next year.

entrepreneurs by Jean Gruss | Editor/Lee-Collier

Paul Woods may be the one to give ethanol back its good name.

Ethanol's gotten a bad rap lately. It's been blamed for everything from food shortages to boat-engine failures. Several ethanol producers in the Corn Belt have filed for bankruptcy protection this year, including South Dakota-based VeraSun, which produces 1.6 billion gallons of ethanol at 16 facilities in eight states.

Woods is undeterred. "It's not the fuel that's lost its shine, it's the way it's made," he says.

Woods and three partners have invested $70 million in a method to collect ethanol from algae that's cheaper and more efficient than any other method used now. Their Bonita Springs-based firm, Algenol Biofuels, has partnered with a Mexican company that plans to build an $850 million production facility on 102,000 acres in the Sonora desert that will produce one billion gallons of ethanol annually. More facilities are planned around the world.

Woods, 46, is no stranger to the energy business. He built Alliance Gas Management in Toronto, raising $80 million and taking the company public in 1997 when its annual revenues hit $100 million. He then founded United Gas Management, a wholesale supplier of natural gas to utilities. By the time he sold that company in 2000, it had 240,000 customers, 130 employees and $75 million in annual revenues.

The Canadian-born Woods is understated about his track record: "I learned how to build and run a business," he says.

But as a young biology student at the University of Western Ontario in the early 1980s, Woods discovered how to produce ethanol from algae. At the time, "people didn't know what ethanol was," he says. There wasn't a market for it; ethanol sales were $1 million a year then. "There was no commercial purpose to ethanol," he recalls.

Now, Woods is betting the ethanol market will continue to grow, as the supply of oil remains limited. The key to success is providing a cheaper alternative, a lesson that governments and entrepreneurs venturing into this risky business ought to learn.

Down on the algae farm

The fuel shortages of the 1970s made a lasting impression on Woods when he was growing up. Converting an automobile engine to run on ethanol isn't costly, so Woods set about finding a cheap and efficient way to capture ethanol that's released naturally by algae.

When he graduated from college in 1984, Woods made a living by opening a small art gallery. He put together about $200,000 from friends and wealthy customers from his art gallery to form a company that would produce ethanol from algae, an idea he says came to him while he was a university student.

Woods tracked down one of the few algae experts, a professor at the University of Toronto named John Coleman. Little was known about algae because there was no money to be made studying it.

"We spent 11 years doing research," Woods says. Coleman is now Algenol's chief scientific officer.

The fact that gasoline was cheap during the 1990s didn't help. Woods called his ethanol-from-algae pursuit a "glorified hobby" while he focused on the profitable business of natural gas. Still, he invested another $700,000 between 1989 and 1996 to continue research and another $100,000 to patent the processes after that.

When he retired after the sale of his second natural-gas company in 2000, oil prices were at $20 a barrel. Then, oil prices started to rise and Woods dusted off his plans when his mother called and complained to him that oil had reached $50 a barrel.

By then, Woods had made his fortune in the natural-gas business and persuaded three partners to join him in forming Algenol. They include Edward Legere, the former president and chief executive officer of Peregrine Pharmaceuticals; Craig Smith, the former chairman, president and chief executive officer of Guilford Pharmaceuticals; and Mexican investor Alejandro Gonzalez.

On March 23, 2006, they launched Algenol and began tests to see if ethanol could be produced from algae on a massive scale. Until then, Coleman had figured out how to capture the gas in a controlled laboratory setting, but it had never been tested on a large scale. They built a large super-secret growing facility in Spain, laboratories in Baltimore and Germany, and a five-acre testing site in Palm Beach County.

Woods says the company has figured out a way to produce ethanol for 85 cents a gallon, considerably less than corn-based ethanol producers. For example, VeraSun's cost of corn alone recently was $2.72 per manufactured gallon sold, according to that company's public filings.

Algenol plans to license the technology to partners to produce the ethanol. "We bring the technology, they pay for the land and installations," he says.

Gonzalez is the first licensee and his company, BioFields, which is spending $850 million to build a massive algae farm in the Sonora desert, drawing sea water from the nearby Gulf of California. BioFields will start selling ethanol in Mexico next year from its 102,000-acre farm. At full capacity, the farm will produce 1 billion gallons of the fuel a year.

Building supply

The U.S. consumes 160 billion gallons of gasoline a year, but it only produces nine billion gallons of ethanol. It costs about $100 to convert an automobile engine that runs on gasoline to run on 100% ethanol, which gives it a distinct advantage over alternatives such as electric cars.

Algenol is not in the business of building the algae farms, so Woods says there are no plans to raise more money from investors. He says he's had no trouble finding partners to build the farms; he's had discussions with about 20 companies with revenues in excess of $20 billion annually.

In addition, the government of Australia has offered Algenol and a partner $200 million in incentives to build a facility in that country and Woods says he's been in discussions with the Florida governor's office about leasing 50,000 acres the state is planning to acquire from U.S. Sugar Corp. The goal is to have four sites started in the U.S. by 2010.

One of the advantages of gathering ethanol from algae is pumping carbon dioxide into the process can double the plants' ethanol production. Some of the biggest carbon-dioxide producers are power plants, so Woods says it makes sense to locate the algae farms near these plants.

There's an incentive for power companies to work with Algenol. Woods expects President Barack Obama and Congress to push for a cap-and-trade system for carbon-dioxide emissions, which are considered harmful to the environment. "We will be the largest consumer of carbon dioxide," Woods says.

Woods isn't concerned that the recent decline in oil prices will lessen the enthusiasm for ethanol. He says oil supplies remain constrained, the government is determined to find alternative energy and demand will return when the economy rebounds next year. "This crisis will pass," he says.

REVIEW SUMMARY

Company. Algenol Biofuels

Industry. Ethanol production

Key. The key to successful ethanol production is making it a cheaper alternative than other sources of energy.

Ethanol from algae

Producing ethanol from algae sounds almost too easy.

All you need is algae, sunlight, carbon dioxide and seawater, all of which are abundant in nature.

But it's taken more than two decades for Bonita Springs-based Algenol Biofuels to come up with the way to do that on a billion-gallon-a-year scale.

Much of the process is a trade secret, but algae is grown in flat, desert areas where land is cheap but is near seawater. Water is pumped into sealed containers covered in clear plastic to allow the sunlight to come through. The algae grow inside the containers, converting carbon dioxide into ethanol. The ethanol gas is then sucked out of the miniature greenhouses and shipped out to distributors.

The beauty of the process is that it doesn't require arable land, large amounts of fossil fuels, fresh water or fertilizers. In fact, pumping more carbon dioxide into the process speeds up the algae's ethanol production.

What's more, algae produces ethanol at a rate of 6,000 gallons per acre annually, compared with 400 gallons per acre annually for corn. Algenol says it is working on ways to produce 10,000 gallons of ethanol per year annually.