Inside Synthetic Genomics, Exxon's New Algae Partner

(MoneyWatch)  Yesterday BNET's Kirsten Korosec covered a new $600 million deal by ExxonMobil to develop biofuels using algae, an uncharacteristic move for a company that has often scoffed at renewable energy. Much has been made of Exxon's decision to support algae over other alternative fuels, like cellulosic ethanol or biodiesel from jatropha or palm. But what makes the specific partner they chose, a three year old startup called Synthetic Genomics (SGI), stand out from the competition?

SGI is not your standard algal biofuel company (of which there are plenty). Its founder, Craig Venter, rose to fame by pitting a previous company, Celera, against the $3 billion Human Genome Project in a race to decode human DNA, and became one of the first individuals to have a published genome.

As its name indicates, SGI exists to work directly with genomes, a field still so young that few useful innovations have yet come from it. Many of SGI's projects so far have had to do with simply reading genomes in an attempt to glean new information about the workings of organisms. Last year, for example, it took money from a Malaysian conglomerate to sequence the genome of the oil palm, the oil from which produces biodiesel.

But the science of genetic manipulation is rapidly improving, along with SGI's prospects as a company. Here are a few reasons Exxon dropped its modus operandi to work with SGI:

• SGI will have more expertise at building a perfect algae than other companies in the space. Exxon's investment is more about advances in biotechnology than algae as it exists today.
• Investing in algae was nevertheless a better bet than oil-bearing plants like jatropha or palm, because algae is a smaller organism with a more easily manipulated genome, putting it within closer reach of today's laboratory techniques.
• Some initial work has already been done by SGI. Venter claims that he may have a better way to separate oil from the algae that produces it -- one of the key hurdles to cross before reaching cost-effective algal biofuel.
• SGI has already been vetted by the competition. It recently entered a deal with BP, another oil major, to work on coal-eating bacteria.

The last point is an important one, because it suggests that aside from being a brilliant scientist, Craig Venter is also an excellent salesman. Personal charisma can go a long ways, especially in areas of speculative technology, where the only person capable of truly vetting an idea is the scientist selling it.

But Exxon's risk is limited. Despite the $600 million figure being trumpeted for the deal, the company can probably withdraw at any time if it thinks that the work is not likely to pan out. In the end, it was probably more of a gamble for Exxon to hold onto its anti-biofuel stance; even if it doesn't hit a jackpot, it will leave the partnership knowing far more than it did before.