In biofuels, the contestants for the next round are being picked as we speak.

LS9 – which says it will be able to prove it can make diesel from designer microbes and sugar economically by 2011 – has raised $25 million to help further test and scale up its technology. The round included alumni like Khosla Ventures and Lightspeed Venture Partners but also a new one: Chevron Technology Ventures.

Chevron's investment comes amid an uptick among large oil companies in biofuels. In August, BP signed a $10 million deal with algae specialist Market Biosciences to study how to grow algae through fermentation and last year put $90 million into ethanol specialist Verenium. In July, ExxonMobil announced a $300 million deal with Synthetic Genomics which could expand to $600 million.

Earlier, Chevron invested in Codexis, another biofuel maker with a designer bug, and formed a joint venture with lumber giant Weyerhauser in February 2008 called Catchlight Energy for biofuels. Chevron also has a R&D deal with Solazyme,which signed a contract to deliver 20,000 gallons of renewable diesel to the U.S. Navy for testing.

Big oil has been dabbling in biofuels for some time. Shell has over 70 research alliances in biofuels, according to one oil exec-turned-prominent biofuel CEO. The influx of money, though, indicates that the oil companies are winnowing down the startups with which they will work. Granted, cellulosic ethanol pumps blossom likely won't sprout at your nearby gas station tomorrow, but the activity represents forward momentum. It's more than a nice ad campaign, after all.

Biofuel companies simply don't have the personnel, the money or the time to move from the lab to industrial production on their own.  Thus, an alliance or investment from big oil represents an opportunity to go commercial.

Chevron's investment is a standard equity investment, said LS9 CEO Bill Haywood. Chevron is not committed to using LS9's fuel. Still, "it's a nice validation," he said and Chevron will test its fuel.

LS9's goal is to be able to show that it could produce synthetic diesel for $45 to $50 a barrel by mid-2011. That's capable of being produced. The fuel won't come out commercially, barring unforeseen difficulties or a lack of financing, until 2013. The company now has a fermenter with a 1,000 liter capacity and will open a much larger demo plant next year.

LS9 combines traditional microbiology with synthetic biology, says Haywood. The company's scientists have engineered a strain of e coli with a genome that can convert sugars into a fatty acid methyl ester which is chemically equivalent to California Clean diesel. The traditional part of the equation is to convert sugar into other materials via fermentation; the synthetic part is having a designer strain of E. coli that commits unnatural acts. Added bonus: LS9 does not have to kill its microbes to get the oil. They secrete it naturally and then can live to feed, digest and excrete more dollops of oil. It's not out of guilt: re-using a microbe instead of cultivating a new generation cuts time and costs.

The basic science, says Haywood, is done. "We are now working on the yield and scaling factors," he said.

The company also has a similar microbe that can make fatty alcohols. In May, the company announced an alliance with Proctor and Gamble to try to turn these byproducts into green versions of the surfactants P&G consumes now.

"The core [genetic] pathway is 90 percent common," Haywood said. "We can make a rich tapestry of products."

Tags: algae, auf weidersehen, biofuel, bp, catchlight energy, chevron, clean diesel, codexis, diesel, exxonmobil, heidi klum, ls9, martek biosciences, shell, solazyme