A report by Future Directions International,  a Western Australian think tank, says algae farming has the potential to generate $50 billion a year and create up to 50,000 new jobs across Australia.

Future Directions International says the west coast is ideally suited to build a biofuel industry from algae because of its abundant sunshine, innovative farmers and the resource industry's huge demand for fuel.

One company, Aurora Algae has conducted a $10 million pilot study at Karatha over the last three years which, it says, has proven the viability of production of Nannochloropsis, an algae which the company also breeds in California.

The company plans to expand its microalgae operations with a $300 million facility to be built next year to produce omega oils, aqua-feed and biofuels.

Initially, the company's main product will be omega oil for health supplements but this could underpin future biofuel production. Marketing Manager Paul Brunato said that "We can sell biofuel for market price no matter what it is and be profitable based on the omega-3s. What we see when we look out over the desert area here is potentially the next Saudi Arabia of biofuel production."