BP and US group, Martek Biosciences, are to assess the commercial viability of converting sugars into diesel for use in the biofuels market.
The multi-year partnership builds on existing technology that converts sugars derived from biomass into lipids that can be used as fuel. The groups plan to assess the viability of using the technology to meet the needs of the energy industry in terms of cost and scalability.
Christian Martin, project manager at Martek, explained: 'What we're trying to do is create an economical process that focuses on the profile of specific energy applications, such as its use in modern transport.
'We're planning on using an established fermentation process but instead of using photosynthetic algae like a lot of other companies are doing, our process uses a sugar source which doesn't require the same CO2 or sunlight to produce the lipids.'
The photosynthesis method uses algae exposed to sunlight in ponds or bioreactors to produce their own sugar. However, in Martek's process, sugar is fed to the algae and undergoes fermentation to produce lipids. These lipids are then put through chemical or thermocatalytic processes in order to convert them into fuel molecules.
According to BP, if this can be done on a large scale, it could deliver greenhouse-gas emission reductions of up to 80-90 per cent, without the need to significantly adjust the energy infrastructure.
To support the research, BP is contributing $10m (£6.1m) to the initial phase of the project, while Martek will carry out further research and development of the conversion process.