The Anglo-Dutch company said the research plant, which is being built with Hawaii-headquartered HR Biopetroleum Inc, would only use non-genetically modified algae.

Climate change and oil prices that almost reached US$100 per barrel are driving strong interest in biofuels.

Scientists are excited about algae as a feedstock because they overcome the key shortcomings associated with the current generation of biofuels such as ethanol.

Palm oil or sugar cane plantations, cornfields and other feedstocks require land that would otherwise be used for food crops or left as forest.

However, algae grow rapidly, at any time of year, are rich in vegetable oil and can be cultivated in waste or sea water.

Shell has said it wants to develop one significant business in renewable energy, and in addition to advanced biofuels, it is also researching solar and wind power.

Although the company continues to make almost all its multi-billion dollar profits from producing and refining oil and gas, high oil prices in recent years have improved the economics of alternative fuels, which generally remain more expensive than hydrocarbons.

Shell is also motivated by government mandates in the United States and Europe that will require a small percentage of road fuels to be derived from renewable sources in coming years.

Environmentalists are cynical about such investments by oil companies, describing them as a fig leaf aimed more at greening a company's image than solving the world's energy needs in a ecologically responsible manner.

Despite the attractions of algae as a feedstock, no one has yet proven it as an economic proposition, although a number of other companies including private-equity-backed Massachusetts-based GreenFuel Technologies Corp. are also conducting research.

In the late 1980s the US government-funded National Renewable Energy Laboratory (NREL) researched the use of algae to produce biodiesel.

However in the mid 1990s, the Department of Energy cut funding to the research, choosing to focus resources on researching production of ethanol, which is produced from sugars in crops such as corn or cane.