Algae biofuels for less than $40 a barrel?

That green stuff in your koi pond could power the world for less than $40 a gallon, if Australian biofuels company Algae.Tec has its way.

Pilot plant studies show that the firm could produce energy-rich materials from algae at the equivalent of less than $40 a barrel, a steep drop from current crude oil prices of more than $100 a barrel and comparable to the cheapest price we’ve seen for crude, which bottomed out at $35 a barrel in 2009. In other words, it promises to be cost-competitive with petroleum even at the lowest prices.

Algae.Tec uses a proprietary process to harvest vegetable oil and biomass from algae. Those products can then be refined into ethanol, jet fuel, and biodiesel.

Algae-derived biofuels are valued because of the short period of time it takes for the organisms to grow. But in the face of scaling difficulties, the companies in this space are increasingly turning to spaces beyond the energy sector to find uses for their technology. Algae.Tec, for example, also uses algae to produce animal feed. South San Francisco-based Solazyme, which filed for a $100 million IPO earlier this month, has an algae-based skincare line. Agricultural behemoth Monsanto recently took an undisclosed equity stake in Sapphire Energy to support their search for genes that can increase crop yields.

That shift away from energy may change if researchers find a way to increase the amount of energy algae stores as fat, a development that would make the energy-harvesting process more cost-efficient. This holy grail has been sought after since the ’90s, but VG Energy may be making progress on that front with techniques originally developed to treat cancer.

[Image via Algae.Tec]