This report analyzes algal biofuels as a sustainable alternative to fossil fuels. It discusses the advantages of algal biofuels including their ability to produce more energy, use carbon dioxide, and grow in wastewater. The report details the production methods like photo-bioreactors and raceway ponds, and compares different generations of biofuels, highlighting the benefits of third-generation biofuels derived from microalgae. The report also addresses the challenges of algal biofuel production, such as high costs and potential contamination. It concludes that despite some issues, algal biofuels have great potential for reducing reliance on fossil fuels and mitigating climate change. The report also reviews the chemical processes involved in lipid extraction from algae and the importance of addressing current shortcomings through further research to ensure environmentally-friendly and economically viable alternatives are utilized.