By Andy Obermueller, StreetAuthority

Big Oil is accustomed to a high return on investment. It makes some sense. After all, it costs millions to drill a conventional oil well and hundreds of millions to drill offshore, with no guarantees. With that in mind, it would be foolish to shoulder that amount of risk without commensurate reward potential.

That means the majors don't invest a dime without the promise of $1, or even $10. And the fact that Big Oil is putting a serious chunk of its capital to work in alternative energy implies that major oil companies think they can get a similar rate of return with "green" energy as they do with good ol' crude.

But let's cut to brass tacks here and just ask the question: "Really?" Can the world's leading petroleum companies honestly expect biofuel to mirror the same sorts of returns that a gusher can produce?

Exxon Mobil (XOM) thinks it can.

The company bet $600 million on a form of biofuel that few people have even heard about. It's not based on conventional agriculture such as corn, but on so-called "micro" crops, which is a nicer way of saying pond scum. That's right, Exxon is betting big on nothing more than algae.

This Exxon business unit -- run, incidentally, by one of the most recognized and influential scientists in the world -- isn't something ordinary investors like you and me could get a piece of. And that's too bad, because I think, along with Exxon, algae could indeed morph into a multitrillion-dollar-a-year industry.

The good news is that Exxon isn't the only company working on this technology. And now, one of the private companies I mentioned in my Feb. 22 issue of Game-Changing Stocks has announced plans to go public.

Super Algae and a $3.1 Trillion Ppportunity

Solazyme owns a unique process when it comes to producing biofuel. Instead of allowing the algae to make their own food through photosynthesis -- that is, harnessing the power of the sun to turn CO2 from the air into sugar to feed itself -- Solazyme turns off the lights. So instead of expending energy making sugar from sunlight and CO2, Solazyme tricks the algae by growing them in total darkness. The algae eat sugar that other plants already have converted. All of the dark algae's energy goes into growing -- fast.

Shutting the lid has other effects, too. It allows Solazyme to put the algae to work in an enclosed and tightly-controlled environment, one that eliminates variables such as temperature, acidity and contamination that can reduce the plant's productivity.

And what, exactly, is the plant producing? Simply put, Solazyme locks a special strain of algae into a drum, throws in biomass -- that is, high-sugar plant matter -- and closes the lid. Just a few days later, the algae have gobbled up the sugar and the resulting mass of algae can be dropped into a conventional refinery and processed into diesel or jet fuel.

The key here is that it doesn't take a geologic age to produce this oil. It only takes a matter of hours. And the process can be carried out in standard fermentation equipment, commercial space that can be rented from lots of industrial manufacturing companies.

Best of all, Solazyme's special genetically engineered super algae yields much more oil than plain old wild algae. This can be quantified. Wild algae will produce oil with a volume equal to 5% to 10% of the organism's dry cell weight. But Solazyme's super algae produce and accumulate oil that's more than 80% of the dry cell weight. In other words, it's eight times more productive.

The markets for oils Solazyme can make is an astonishingly gigantic $3.1 trillion industry annually. What's more, algae-based oil can be created on an extremely large scale and at an extremely low cost.

Don't miss out on what I'm saying here: This is a legitimate contender in the race to replace conventional crude.

Another fact that will help erase your remaining skepticism:Goldman Sachs (GS) and Morgan Stanley (MS) are the lead underwriters on the deal. We all know they aren't going to take a flyer on anything that's not likely to make them gobs of money.

The biofuel revolution isn't science fiction or just an interesting idea. It's happening -- now. And with this IPO, investors will finally have a chance to get a piece of the action.

Stay tuned for more details about when the initial public offering (IPO) will hit The Street.

P.S. -- I've created a free webcast, 6 Financial Surprises That Will Create Huge Opportunities in 2011, that will give you more insight into the sectors -- like biofuels -- where we're going to see massive investment shifts in the months to come. If you're interested in discovering what these megatrends trends are and how to play them, click here.

Disclosure: Neither Andy Obermueller nor StreetAuthority, LLC hold positions in any securities mentioned in this article.

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April 28 2011 at 10:11 AM Report abuse rate up rate down Reply

I am glad everybody likes a good media story, which we seem to get feed a lot of these days. This process refers to cellulosic ethanol, the product of fermentation of wood fiber to produce ethanol. To date no one has come up with a cost effective process. This may be another boon doggle like corn ethanol. Or was that a legal ponzi scheme where everybody invested and only a few get rich or was that .comism.

April 25 2011 at 1:30 PM Report abuse rate up rate down Reply

Americans love pie in the sky. Me too. Don't get excited yet, though. Remember ethanol? We were all going to buy cars than ran on ethanol and never have to buy gasoline again. Too bad. Without government subsidies, the ethanol industry is dead. What about huge oil subsidies? Go ahead, take them away. "Big Oil" won't die. Why not take the subsidies away from everyone -farmers included? Level the playing field. Quit worrying about solar-powered global warming and do what humans have done all along - adapt.

April 25 2011 at 1:07 PM Report abuse rate up rate down Reply

Algae + water + yard waste = oil. Sounds doable, kudos to the ones who came up with this process.

April 25 2011 at 12:19 PM Report abuse +3 rate up rate down Reply

This is front page news. It will transform the worlds' economies and kill OPEC. It means our energy dollars will stay in the USA, adding 3 trillion/year to our economy.

April 25 2011 at 11:56 AM Report abuse +3 rate up rate down Reply

Hoorah! We will be back to SUVs and PickUps!!!!!!!!!!!!

April 25 2011 at 11:49 AM Report abuse +1 rate up rate down Reply

I this is such a great deal it does not need funding. Let the private sector fund it.

April 25 2011 at 11:37 AM Report abuse +1 rate up rate down Reply
1 reply to doulosxp's comment

What do you think an IPO is???

April 25 2011 at 12:13 PM Report abuse rate up rate down Reply

Why are the Republicans trying to block funding for the development of Algae Fuel?

April 25 2011 at 11:05 AM Report abuse rate up rate down Reply

Where are you going to get the hydrogen? There are no cost effective (comparatively speaking) ways to extract hydrogen that don't use copious amounts of electricity to produce. Hydrogen is also extremely volatile and corrosive to certain metallic parts. You will see CNG widely used as fuel long before you see hydrogen used widely as a fuel.

April 25 2011 at 8:20 AM Report abuse rate up rate down Reply
2 replies to pinsroost's comment

The WHOLE point is that the petrochemical industry is far ahead of the politicians. It is there to make a buck and pinning your future on an old and decrepit industry is corporate foolishness. Eventually even the most diehard believer in the past will realize that war is not the answer to getting fuel. What the country now needs is an energy policy that is not at the whim of the political winds. Can't use another Reagan to shut this down and set us back for 30 years.

April 25 2011 at 11:35 AM Report abuse rate up rate down Reply

Read the article. Doesn't make hydrogen. It makes oil which will be refined at a regular refinery, meaning that no new infrastructure will be required to process and deliver the product.

April 25 2011 at 12:01 PM Report abuse +1 rate up rate down Reply

Algae produce 70 % of the World's Oxygen...................why hot Oil ? In ten years Hydrogen will be the fuel of
choice so Exon had better get busy ! ! !

$ 4.00 Gasoline is a pain for Familes !

April 25 2011 at 6:22 AM Report abuse +1 rate up rate down Reply