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Chevron Corp., the nation's second-largest oil company, wants a piece of the biofuel business.
San Ramon's Chevron reported Wednesday that it has created a business unit to devise new ways to make ethanol and biodiesel, which are derived from organic sources such as corn, soybeans and vegetable oil.
The unit also will look for opportunities to produce and distribute biofuels. In May, Chevron bought a stake in a biodiesel plant under construction in Texas that could eventually double the amount of the fuel made in the United States.
For a company that last year made $14.1 billion in profits from pumping and selling oil, biofuels represent a small investment. Chevron spends about $300 million per year on alternative sources of energy, including biofuels.
The company, however, wants to explore the field's potential, said Donald Paul, Chevron vice president and chief technology officer.
"How big is this going to be? I would have to say you don't know," he said. "When you've got a new playing field with different players, the way you find out how big it is, is you get in there and do it."
Chevron does not view biodiesel and ethanol as replacements for fossil fuels -- at least not now.
"We see it as an augmentation strategy, quite frankly," Paul said. "When you look at the growth in demand in the next 25 years in fuels, to meet some fraction of that growth ... you're going to need to augment what we have."
The new business unit will be based in Houston, under the direction of Vice President Rick Zalesky.
Although hardly new, the biofuel industry has seen a surge in interest and investment during the past year. As fears mount about the size and cost of the world's oil supply, politicians have touted biofuels as a way to ease America's reliance on foreign oil. In addition, many states have started blending ethanol into their gasoline as a way to suppress air pollution, driving up ethanol prices.
In a sign of the biofuel industry's new prominence, agricultural giant Archer Daniels Midland Co. this spring picked a former head of Chevron's refinery operations as its new chief executive officer. Based in Illinois, ADM is the country's largest ethanol producer.
Other oil companies are also investing in biofuels and other renewable energy sources. BP, formerly known as British Petroleum, plans to spend about $8 billion on alternative energy in the next 10 years, for example.
Chevron is already working with the state of California to develop fueling systems for hydrogen cars.
The oil companies' efforts, however, have met with skepticism from many environmentalists. The amount of money invested so far, they note, pales in comparison to the cash sunk into finding and producing more oil. Chevron, for example, plans to spend $15 billion to $16 billion annually in 2007 and 2008 on fossil fuel exploration, production and infrastructure.
Many environmentalists and alternative-fuel advocates say the oil companies are engaged in "greenwashing" -- dabbling in biofuels, hydrogen and solar power as a ploy to blunt criticism over high oil prices and global warming.
"It really requires careful scrutiny about how much of this is real interest and how much is public relations," said David Hamilton, co-director of the Sierra Club's global warming and energy program.
But Hamilton said he didn't want to criticize Chevron for looking into biofuels. He just wants the company to spend more on the effort.
"The world needs crash investments in alternative sources of energy, and right now the oil companies are incredible sources of capital," Hamilton said.
The technologies used to make ethanol and biodiesel are changing. Researchers are searching for ways to make mass quantities of ethanol from plants such as switchgrass that would be easier and cheaper to grow than corn. Chevron's new business unit will join in that hunt, as well as seek to improve existing biofuel technologies.
Paul said pouring too much cash into biofuels now would be risky. If the company invested too heavily now, it might waste money by building facilities based on technology that quickly became obsolete, he said.
"If the markets grow and the technology supports it, then you can ramp up to the big investments," he said. "If you go spend all your resources on the current generation of a technology, history shows you may not be happy with the results down the road."
Chevron Corp. has created a unit specializing in ethanol and biodiesel fuel with the goals of:
-- Refining existing technology to make quality more reliable.
-- Researching new ways to make biofuels, such as cellulosic ethanol, fuel derived from crop waste or switchgrass.
-- Producing and distributing biofuels using a new plant under construction in Texas.
Source: Chevron Corp.