NEW YORK (AP) - The fledgling effort to turn what is essentially pond scum into a viable renewable fuel source is edging further into the mainstream. On Tuesday, Solazyme Inc., a five-year-old biotechnology company, announced an agreement with Chevron Corp. to develop and test biodiesel building blocks made from algae. The deal could accelerate Chevron's research into the growing field of algae-based fuel. In October, the San Ramon, Calif.-based company, the second-largest U.S. oil producer, announced a deal with the Department of Energy's National Renewable Energy Laboratory to develop jet fuel and other liquid transportation fuel using algae. Both companies declined to discuss financial terms and other details surrounding the deal. Privately held Solazyme said the agreement represents an important step toward commercializing the alternative energy source, which it says produces fuel that is cleaner and more sustainable than petroleum-based products. The company last fall said it succeeded in producing thousands of gallons of algal oil that could be used as a feedstock for biodiesel. "A lot of the work now is focused on chemical engineering to improve the processes so we can bring the costs down," Jonathan Wolfson, Solazyme's chief executive, said in an interview. South San Francisco, Calif.-based Solazyme is one of a handful of companies working to produce fuel from oil-rich algae. Last summer, UOP LLC, a division of Honeywell International Inc., received $6.7 million in funding from the Defense Advanced Research Projects Agency to develop jet fuel from vegetable and algal oil. Like animal fat or vegetable oil made from terrestrial crops, naturally occurring algal oil can serve as the main ingredient for different types of biofuel. Proponents say algae offers a number of advantages over conventional crops such as corn, the main ingredient in U.S. ethanol. "If you assume you're going to have to grow your energy ... then the question is how do you grow as much biomass as possible, as quickly as possible, and not compete against food and feed crops," said Dave Jones, chief operating officer of LiveFuels Inc., another company working to develop affordable algae-based fuel ingredients. "It's believed that algae can produce more biomass than anything else." Solazyme's announcement coincides with the introduction of biodiesel it produced using a process the company says has been road-tested in a regular car. For the time being, algae-based biodiesel remains prohibitively expensive, so the challenge for any company hoping to market it will be to lower the cost to within range of standard fuels. Wolfson said he believes Solazyme has already come a long way toward its goal of pushing the cost as low as $45 to $50 a barrel. "We have a high degree of confidence we can be to a commercial scale and commercial economics in two to three years," he said. Copyright 2007 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.