* Greenhouse will test algae strains
* Next step is outdoor testing
* Spending will grow over the next decade (Adds quotes, details from news conference, byline)
By Alyson Zepeda
HOUSTON, July 14 (Reuters) - Exxon Mobil Corp (XOM.N) said on Wednesday it opened a greenhouse facility to grow and test algae, the next step for its nascent biofuels program.
Exxon said last year it would invest $600 million over the next five to six years attempting to develop biofuel from algae. If it met research goals, Exxon said it would spend more than originally budgeted in the next decade, $300 million of which would be allocated to its partner Synthetic Genomics Inc.
The project would cost billions to fully develop, Exxon said.
Researchers from Exxon and Synthetic Genomics will use the new facility to test whether large-scale quantities of affordable fuel can be produced from algae.
"It's one step along a pretty long path, but it's an important step," Emil Jacobs, vice president of research and development at Exxon Mobil, said at a teleconference held at Synthetic Genomics headquarters in La Jolla, California.
Should all go as planned, an outdoor test facility will be opened in the middle of next year, the companies said.
Exxon's biofuel investment represents a tiny portion of the oil company's spending, which is set for $32 billion for just this year. That figure includes the budget of XTO Energy Inc, a natural gas company that the oil company bought.
Synthetic Genomics, headed by entrepreneurial scientist Craig Venter, is a privately held firm focusing on gene-based research.
Some strains of algae produce oil that can be converted into diesel and other fuels. To make biofuel from algae, sunlight and a large source of carbon dioxide would be needed.
Venter said thousands of natural strains of algae are being screened for quantities that would make commercial production economical, but the sheer number of requirements means at some stage chosen strains will probably need genetic modification.
"There's literally hundreds of parameters we are tracking in these cells," he said.
Beyond identifying a strain, separating the algae from water and hydrocarbons from the algae in a cost-effective way is the next biggest challenge, said Mike Harold, professor of chemical engineering at the University of Houston. After that, he said, processes already exist to convert the product to a usable fuel.
"Those facilities are available in a host of companies and it would just be replacing soybean oil and corn oil and other vegetable oils with algae oil," Harold said.
Exxon has said it could eventually source its carbon dioxide for the research product from power plants, natural production or refineries.
The greenhouse will give researchers the chance to test lab theories in an environment with natural variables, but Jacobs emphasized that safety and containment is also a very important part of the new facility.
San Diego Mayor Jerry Sanders said, "Thank you for ensuring that we won't have revenge of the pond scum flowing into our community."
Shares of Exxon closed down 16 cents at $59.26 on the New York Stock Exchange. (Additional reporting by Anna Driver in Houston; Editing by Robert MacMillan, Gerald E. McCormick, Gary Hill)