Majestic Muck: Can Pond Scum Revive Airlines?

If nothing else, maybe pond scum can save the airline industry.

Many aviation and renewable-energy experts have expressed optimism that biofuels made from algae and certain plants will one day lessen airlines’ dependency on petroleum, while lowering painfully high operating costs and increasing sustainability.

The environmentally friendly oils have been studied intensely over the last few years and have met many stringent jet fuel regulations. Boeing (NYSE:BA) officials are optimistic they will be approved for commercial use by the end of this year.

“We now know that these fuels meet all the standards for gasoline, jet fuel and diesel,” said Richard Sayre of the Donald Danforth Plant Science Center, who also serves as chief technology officer of Phycal, an algae-fuel focused biotech company. “We are very optimistic [algae] will produce fuel for the aviation industry in particular.”

Boeing has already tested what it calls “sustainable biofuels” on five separate occasions, including a test run of its twin-engine 737-800 in collaboration with Continental Airlines, now United Continental (NYSE:UAL). Other airlines such as Air New Zealand and Qatar Airways have also experimented, and some say Lufthansa is racing to be the first carrier to run daily flights on a biofuel blend.

The 90-minute Continental flight in 2009 was one of the first in the U.S. to test biofuels derived from algae and jatropha on a commercial jet. Boeing spokesman Terrance Scott said there was a “noticeable improvement” of about 3% when comparing the blend with that of conventional petroleum.

“Every flight exceeded our exceptions,” said Michael Hurd, director of environmental strategy for Boeing Commercial Airplanes.

The research has given the oil-hungry industry another look at dealing with skyrocketing fuel costs and ever-changing “green” regulations. The aviation sector itself has made a pledge to reach carbon neutral growth by 2020.

“Our industry has made tremendous progress since the start of jet age, bringing ever more fuel efficient planes into the market,” Hurd said. “We will continue that trend with the newest airplanes.”

Volatile oil

Jet fuel costs as a  part of total expenses have been rapidly climbing over the past decade, making up 24.6% of total U.S. airline costs in 2010, up from an average of 19% last decade, according to investment research firm MorningStar.

This year is just as grim, with crude climbing 25%, or $23.45, in 2011 to a high of $114.83 a barrel on May 2, impacted by continued unrest in the Middle East, though the price has pulled back sharply in recent days.

Air Transport Association chief economist John Heimlich has predicted that airline fuel bills will increase $15 billion to an estimated $54 billion in 2011 if gas prices remain above $3 a gallon. A penny increase for a gallon costs U.S. airlines $175 million, he says, while a dollar increase for a barrel runs a bill up $415 million.

Pressured by increasing oil costs, airlines have implemented cost saving initiatives and higher fares, and they are now striving to compete with each other on new levels to capture a competitive edge.

“As fuel prices increase, flights become less profitable so airlines may also reduce capacity, and some carriers already have reported downward growth plans,” Heimlick said in a note on the ATA website.

While the industry, which makes up some $1.2 trillion in annual economic activity and maintains 11 million jobs in the U.S., has somewhat readied itself for a spar against rapidly climbing jet-fuel prices, analysts at MorningStar said they don't believe fare hikes and consolidation will fully offset the lightning speed growth of oil.

“There will be a time when we will run out of oil we can extract from ground,” Sayre said, noting the renewable fuels have sustainability, offer fewer green house emissions and operate on a process that could go on “more or less indefinitely.”

Heroic muck?

Scientists close to biofuel research have predicted that wide-scale affordable industrial production of algae-based oil could ramp up within three to five years, though the timeline is malleable until industry-wide funding is fully secured.

Once approved and manufactured on a larger scale, scientists will be able to test the sustainability and economic feasibility of algal and other biofuels, including their energy return on investment, or how much energy is outputted for every unit inputted.

Scott said supply is the industry’s biggest constraint, which is one reason initial fuels approved for commercial use will only consist of 50% or less organic oils, with the rest made up of conventional petroleum.

Algal fuel currently sells in the range of $4 to $5 a gallon, or $150 to $200 a barrel, according to Sayre. But once industrial scale production facilities are running at full capacity, and emerging technologies make algae more efficient, the price could drop to $2 a gallon, he said.

“We have to show [oil companies] there’s a market for these fuels and at the same time have to work with makers of feedstock to boost availability,” Hurd said.

Existing refineries can be adapted to produce biofuels by adding additional equipment, he said, and many oil giants such as Exxon Mobil (NYSE:XOM), Chevron (NYSE:CVX) and ConocoPhillips (NYSE:COP) have already invested millions in its development.

Boeing has ensured that all fuels it tests can work as a drop-in fuel, one that has met or exceeded current specifications and would therefore not require any hardware or software modifications to current airplane systems.

While the innovative fuels may help airlines drain costs and lower their environmental footprint, researchers at the Massachusetts Institute of Technology warned in a recent study that conventional fossil fuels may sometimes be the “greener” choice.

“What we found was that technologies that look very promising could also result in high emissions, if done improperly,” said James Hileman, principal research engineer in the MIT Department of Aeronautics and Astronautics. “All those processes require energy and that ends up in the release of carbon dioxide.”

Airlines, he said, need to account for potential emissions when developing ways to scale up biofuel production.