A pilot study funded by Xcel Energy Inc. (NYSE:XEL), with cooperation from the Metropolitan Council of Minneapolis, is out to prove that oil produced from algae can reduce the United States' dependence on foreign oil, the Minneapolis Star Tribune reported Tuesday.

Algae produces 5,000 gallons of oil per acre. Corn, by comparison, produces 18 gallons. Soybean yields 48 gallons. An acre of palm trees yields 635 gallons.

Researchers Roger Ruan and Paul Chen will start with 200 gallons of waste water, but see the potential as enormous, the Star Tribune reported. They also predict the steep price of production, $20 per gallon, will drop significantly as the technology improves and catches on.

The production process can take advantage of excess heat, nitrogen, carbon and phosphorus produced by coal-burning plants and waste-water incinerators, making algae pond farms a possibility for northern and southern states.