Key Points:

One man's waste is another man's treasure in a process developed in New Zealand that could revolutionise the fuel industry.

A South Island company has developed a means of turning algae that grow in sewage ponds into crude oil, which can then be refined into fuels such as petrol, LPG or kerosene and aviation fuel.

The process occurs naturally over millions of years as the algae are subject to heat and pressure, but a machine created by Solray Energy Ltd can do it in a matter of hours.

Unlike biofuels that rely on planted crops, the algae form naturally.

Another South Island company, Aquaflow Bionomic Corporation, is also working on the potential for creating crude oil from algae, after initially focusing on making biofuels. It is currently seeking to establish patents of its own.

Solray Energy director Chris Bathurst told the Herald the idea of using algae had been trialled in the United States in the 1970s but dropped because it was too expensive.

Mr Bathurst said his company took up the challenge in about 2003 and had now patented a machine which made it economic.

"There's a lot of people working on it, but we think our patent is sound. We haven't seen anyone with exactly our process."

Mr Bathurst, whose Christchurch operation has joined forces with an engineering firm in Invercargill in the venture, said there was no shortage of algae to work with, but the challenge was to build machines that could convert large quantities of them.

"We built a machine which worked very well and then carried on and built a second machine 12 times bigger. We are just getting that going now."

At present, about a third of the processed algae become crude oil "but we know we can do much better than that".

The initial market for the machines could be authorities in cities and towns making use of the algae already in their oxidation ponds, but it has potential wherever enough of the algae grow.

Nutrients left behind after the process could be supplied to farmers for their pastures.

* Algae are harvested from sewage ponds which can grow up to 100 tonnes per hectare in the right conditions.
* They are put into a specialised machine to convert them to sludge.
* This sludge is then converted into crude oil through exposure to extreme heat and pressure.
* This crude oil can then be refined into fuels like petrol.