A Hawai'i-based research firm and oil giant Royal Dutch Shell PLC are forming a joint venture with the ambitious goal of developing an alternative to petroleum-based fuels by growing algae on the Big Island and converting it into a biofuel.

HR BioPetroleum Inc. and Shell formed the joint-venture company, Cellana, to develop the demonstration project on 6 acres on the Kona Coast. The land is being leased from the Natural Energy Laboratory of Hawai'i Authority and is near several existing commercial algae businesses.

Barry Raleigh, retired dean of the University of Hawai'i School of Ocean and Earth Science and Technology, is heading the local company. Raleigh said the technology to convert algae into an alternative to diesel and other fuels has been around for years, but that his company is hoping to find an inexpensive way to produce the fuel.

"It's all about the cheapest way of doing it and making the numbers work," Raleigh said. "If this works, it's something you can feel pretty good about. This is really an important thing for mankind."

Raleigh, 73, said the Department of Energy had a similar program in the 1980s to find cheaper, more environmentally friendly fuel sources. But he said the price of oil dropped, and so were the projects.

The joint venture will test several kinds of algae to find the optimal oil-producing strain. Once the algae is harvested, the oil will be extracted to be used for biodiesel or other fuels, Raleigh said.

He said the key to the Big Island venture is to produce vast amounts of algae outdoors, while eliminating lingering problems of contamination.

"The problem in the past was when you grew the algae in open ponds they would always get contaminated by wild strains of algae or other organisms and the whole culture would crash and you'd have to start over again," he said. "What we do is to keep the high productivity monoculture strain growing in an enclosed system and then every day you take a piece of that out and you put it in the pond and you grow it very fast and you harvest it so it doesn't have time to get contaminated."

A spokeswoman for Shell declined to say how much is being invested in the project. Shell, Europe's largest oil company, posted $6.92 billion in net profit in the third quarter.

"Algae hold great promise because they grow very rapidly, are rich in vegetable oil, and can be cultivated in ponds of seawater, minimizing the use of fertile land and fresh water," Shell said in a statement. In October, Shell competitor Chevron Corp. and the U.S. Department of Energy's National Renewable Energy Laboratory announced a similar project to study and advance technology to produce liquid transportation fuels using algae.

Raleigh said the demonstration project is expected to produce 5,000 to 6,000 gallons of biofuel per acre each year. A full-scale commercial production facility would occupy about 50,000 acres, but Shell did not say when or where one might be built.

Raleigh was one of the most respected deans on the UH-Manoa campus when he resigned in 2003. Following his departure, Raleigh said, he began to think about global energy issues and "quickly realized we were in trouble."

"(HR BioPetroleum partner) Mark Huntley had just written a paper on his experience at Aquasearch, which he ran on the Big Island, and suggested that algae could in fact be used to sequester carbon dioxide from the atmosphere and make fuel," Raleigh said. "So I talked him into trying to get some federal money for some research. There wasn't any, so we decided that we would have to try and find a corporate partner and we incorporated a little company so that we could do that."

Raleigh said he believes it will take about two years to determine if the technology will work.

The Associated Press contributed to this report.

Reach Curtis Lum at culum@honoluluadvertiser.com.