Although algal biofuels possess great potential, profitable production is quite challenging. Much of this challenge is rooted in the thermodynamic constraints associated with producing fuels with high energy, low entropy, and high exergy from dispersed materials. In this study, a preliminary thermodynamic analysis is presented that calculates the energy, entropy, and exergy of the intermediate products for algal biocrude production. These values are also used in an initial attempt to characterize the thermodynamic efficiency of that system. The production pathway is simplified by assuming ideal solutions throughout. Results for the energy and exergy efficiencies, and the first-order energy and exergy return on investment, of the system are given. The summary finding is that the first-order energy return on investment in the best case considered could be as high as 520, as compared to 1.7 x 10(-3) in the experimental unit under development. While this analysis shows that significant improvement may be possible, the ultimate thermodynamic efficiency of algal biofuels likely lies closer to the moderate case examined here, which yielded a first-order energy return on investment of 10. For perspective, the first-order energy return on investment for oil and gas production has been estimated in the literature to be similar to 35. (C) 2012 Elsevier Ltd. All rights reserved.