Algae fuel, also called algal fuel, oilgae^[1] or third generation biofuel, is a biofuel from algae. Compared with second generation biofuels, algae are high-yield high-cost (30 times more energy per acre than terrestrial crops) feedstocks to produce biofuels.

Nowadays they cost $5–10/kg and there is active research to reduce both capital and operating costs of production so that it is commercially viable.^[2][3]

Algal fuels do not impact fresh water resources ^[4].

With the record oil price increases since 2003, competing demands between foods and other biofuel sources and the world food crisis, there is much interest in algaculture (farming algae) for making vegetable oil, biodiesel, bioethanol, biogasoline, biomethanol, biobutanol and other biofuels.

The production of biofuels to replace oil and natural gas is in active development, focusing on the use of cheap organic matter (usually cellulose, agricultural and sewage waste)^[5] in the efficient production of liquid and gas biofuels which yield high net energy gain. One advantage of many biofuels over most other fuel types is that they are biodegradable, and so relatively harmless to the environment if spilled.^[6][7][8]

The United States Department of Energy estimates that if algae fuel replaced all the petroleum fuel in the United States, it would require 15,000 square miles (38,849 square kilometers), which is a few thousand square miles larger than Maryland, or 1.3 Belgiums.^[9] This is less than 1/7th the area of corn harvested in the United States in 2000.^[10]