PetroSun has pulled out of a project angling for research money from the U.S. Department of Defense after the agency halted a program to develop an alternative to a petroleum-based jet fuel.

Scottsdale, Ariz.-based PetroSun, which is developing technology that converts algae to biofuels, said Tuesday it has withdrawn its participation in a project headed by Science Applications International Corp. (NYSE: SAI).

Science Application International has applied for funding from the defense department's research arm, the Defense Advanced Research Projects Agency (DARPA), which has been looking for ways to replace JP-8, a type of jet fuel used by the military to power aircrafts and ground vehicles.

About 90 percent of the fuels consumed by the department of defense is the petroleum-based JP-8, said Jan Walker, a spokeswoman for DARPA.

DARPA issued a call for research proposals last November, asking for projects to develop biofuels for replacing JP-8. The biofuels must use nonfood feedstocks.

The agency had put the selection process on hold due to a protest filed with the U.S. Government Accountability Office.

Michael Golden, managing associate general counsel for the GAO, said Thomas Aerospace Industries protested that it was not selected for funding. The protest was filed July 17, and the office has until Oct. 27 to respond, he said. 

Walker couldn't say how many companies and research institutions have submitted research proposals.

With no clear end in sight, PetroSun decided it didn't want to take part in the research proposed by Science Applications International, headquartered in San Diego.

"It would have been nice to work with DARPA," said Jim LeCrone, PetroSun's chief operating officer.

But without knowing when and whether DARPA would resolve the issue, the company felt the need to focus on its own work to develop algae-based jet fuel, LeCrone said.

"We are going to move on our own," LeCrone said. PetroSun has already started working on turning algae into jet fuel, said LeCrone, who declined to say how far along the company is with the project.

Laura Luke, a spokeswoman for Science Applications International, said the company won't comment on PetroSun's decision. She also declined to say how the decision will affect Science Applications International's proposed research, including the ability of the company to get DARPA funding.

The possibility of jet fuel from algae also has piqued the interest of commercial airlines, which are dealing with soaring fuel costs and trying to recoup costs by  charging customers for checking in their luggage.

In June, Air New Zealand, Continental Airlines and Virgin Atlantic Airways said they will join the Algal Biomass Organization, an industry-led nonprofit devoted to the commercialization of biofuels made from aquatic plants (see Algae-Based Biofuel Could Prep for Take Off).

Algae's oily properties and ability to double in mass in a few hours have made the aquatic plant an alluring feedstock for biofuels.

But challenges, such as the difficulty of growing large quantities of algae at an affordable price, have kept companies from making money from the slime.

-- Editor Jennifer Kho contributed to this story.