Verenium Corporation (VRNM)

[spartex]

Peanuts or Seeds?
Some in the industry are dismissive of the funds the majors are committing. "It's less than peanuts for them, given the size of their investment budgets," says Steen Riisgaard, head of Novozymes AS, a Danish company that provides enzymes used in the production of bioethanol.

Shell, for example, has spent about $1.7 billion on alternative energy and carbon-emission-reducing technologies like CCS in the past five years, while its total capital investment budget last year was $32 billion. BP's investments in alternative energy totaled $1.4 billion last year, about 6% of its capital-expenditure budget for the year, and will fall to between $500 million and $1 billion this year as the global economic slowdown saps demand for energy.

But others think of the current level of investment as just the start of a long-term trend. "The bigger investments will come beginning next year, when commercial deployments start to gain pace," says Carlos Riva, chief executive of Verenium.

"The investment in dollar terms doesn't tell the whole story," adds Mr. Riva. Another key contribution is the "management skills [the oil majors] bring, in terms of design and engineering and the delivery of large-scale commercial projects."

"That's something the biofuels industry really needs," he says.

Ultimately, some industry insiders see a future of integrated biorefineries, where the majors will have a suite of low-carbon products they can blend at varying strengths for different markets.

For now, though, the majors are maintaining a cautious stance even as they invest in biofuels, a position shared by industry analysts. "It's an exciting area, but it's unproven," says Angus McCrone, senior analyst at New Energy Finance Ltd., an alternative-energy research firm. "We still don't know if you can produce them at a cost that's economic.…It's a gamble."

— Mr. Chazan is a staff reporter in the London bureau of The Wall Street Journal. He can be reached at [e-mail] .