Something's fishy with China algae plant

Fresh off the heels of delaying its Texas algae farm, slippery Pink Sheets-traded PetroSun (OTC: PSUD.PK) says it now plans to build a commercial pilot plant for algae-based fuels in China.

Scottsdale, Ariz.-based PetroSun claims to have secured $40 million from Shanghai Jun Ya Yan Technology Development, but company officials didn’t respond to inquiries last week about the new partner, the capacity or projected opening of the China plant, or the status of its other projects.

But a PetroSun employee who asked not to be named said the company doesn’t have a production facility for algae-based fuels yet.

In March, the company said it was weeks away from opening an algae farm on the Texas Gulf Coast on April 1. The PetroSun employee said April 1 was actually the start date for the lease on the land—the company is still waiting on permits six months later to allow it to build the 1,100-acre salt-water, open-pond system. PetroSun has said it expected the farm near Harlingen to produce a minimum of 4.4 million gallons of algal oil and 110 million pounds of biomass a year.

In 2007, PetroSun announced it licensed its technology to its own subsidiary in order to establish a refinery in the Australasia market to produce up to 20 million gallons of biodiesel per year (see PetroSun licensing biofuel-from-algae process to... itself?). Similarly, PetroSun has licensed its technology to another subsidiary for the proposed China plant.

That 2007 venture into the Australasian market hasn’t produced a refinery to date. In July, a release from the company said PetroSun and Icon Energy decided to terminate a letter of intent to form a joint venture for an algae-to-biofuels commercial farm system in Queensland, Australia. The release also said PetroSun is in talks to establish a commercial-scale algae farm system in New South Wales, Australia.

Yesterday, another PetroSun subsidiary said it planned to work with Biomass Partners to find existing farm ponds to grow algae in Alabama, Mississippi, Louisiana and Arkansas. PetroSun also says it has plans for a pilot biofuels plant near a wastewater treatment facility in Arizona.

A news release from PetroSun said its officials planned to visit potential farm and plant locations near Shanghai starting today. PetroSun said it expects to open offices in Shanghai and Beijing.

The company says it uses open ponds to grow algae but won’t release other details about the process. The PetroSun employee said the company has not raised venture capital.

PetroSun isn’t considered a big player in the algae-biofuel market, which hit a record $95 million in venture investments in the third quarter of 2008.

South San Francisco, Calif.-based Solazyme has raised $75 million in venture capital (see Solazyme joins algae elite with additional $45M). San Diego’s Sapphire Energy said in September it has raised more than $150 million (see Bill Gates gets slimed).

Other major players include Madison, Wis.-based Virent Energy Systems, which has raised $30 million (see Game-changing day for jet biofuels); Alameda, Calif.-based Aurora Biofuels, which has raised $23.2 million (see Aurora Biofuels lands $20M in Series B); GreenFuel Technologies, which raised nearly $14 million this year; LiveFuels, which has raised $10 million; and PetroAlgae of Florida, which agreed in September to be acquired by Delaware-based PetroTech Holdings.

Despite the massive capital raised, no company has built a commercial-scale plant for algae-based biofuel production, said Will Coleman, a partner at San Francisco-based Mohr Davidow Ventures.

“The promise of algae has driven an enormous amount of people to try to come up with a solution,” Coleman said. “There are more challenges than I think people acknowledge, and I think we will get there, but I think we’re further out than some of these companies are saying.”

One of the problems has been over-promising by companies as to the date of commercial production, he said.

A biofuel-from-algae startup that boasted to large production claims, South Africa's de Beers Fuel, has been accused of fraudulent misrepresentation and squandering investors' funds (see Swimming with the fishes and Biofuel from algae startup on shaky ground).