The debate over peak oil usually descends into name calling by one or both sides, making it difficult to assess the opposing arguments without getting distracted. This is unfortunate because it is an important issue that will impact everyone. Hypothetically, if worldwide oil production has peaked - as some analysts say it has - biofuels represent one of the best ways to replace that depleting resource.

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The best evidence for biofuels taking center stage is that the largest oil company in the world decided to put some money down on the table in this area. Exxon Mobil (NYSE:XOM) invested $600 million into a biofuels joint venture with a privately owned company called Synthetic Genomics Inc. The technology involved takes photosynthetic algae and converts it into biofuels in a multi stage process. The technology is still early stage, however, and Exxon Mobil doesn't expect results for years.

Although Synthetic Genomics is a relatively new company, it has some solid management behind it. J. Craig Venter, one of the founders of Synthetic Genomics, also founded Celera Corp (Nasdaq:CRA), a medical instrument company.

Exxon Mobil has always been resistant to the idea of biofuels, arguing for years, that nothing could replace oil, at a competitive cost. After researching many different technologies, the company apparently has found one that it feels has potential.

The use of photosynthetic algae has many advantages. It has a higher yield than other alternative crops that some are advocating for biofuel use, producing 2,000 gallons of fuel per acre per year of production. Competing crops like Palm yield 650 gallons per acre per year. Corn Ethanol, the most common alternative fuel, yields only 50 gallons per acre per year.

Another advantage is that the Algae consumes Carbon Dioxide when it is growing, which reduces greenhouse gases from the environment.

One interesting fact is that BP, Inc (NYSE:BP), a competitor of Exxon, was one of the early investors in Synthetic Genomics Inc., back in 2007. The two companies were working on creating genetically engineered bacteria to speed up the process of biofuel production. Other non-energy companies have also invested in biofuels. PACCAR (NYSE:PCAR) and Caterpillar Inc. (NYSE:CAT) recently invested $5 million in a bio-refinery in Ohio. The bio-refinery will use technology that converts rice straw and wood waste into diesel fuel.

Investments in biofuels and other alternative energy sources have continued to grow, accelerated by high commodity prices and apocalyptic pronouncements on the social and economic impacts of peak oil. The $600 million investment by the largest integrated oil company in the world will help legitimize this investment and convince any doubters that are left. (To learn more, see The Biofuels Debate Heats Up.)

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Tickers in this Article: XOM, CAT, PCAR, CRA, BP

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