A newfound fungus living in rainforest trees makes biofuel more efficiently than any other known method, researchers say.

In fact, it's so good at turning plant matter into fuel that researchers say their discovery calls into question the whole theory of how crude oil was made by nature in the first place.

While many crops and microbes can be combined to make biofuels — including the fungi that became infamous as jungle rot during WWII — the newfound fungus could greatly simplify the process, its discoverers claim. Researchers have suggested that billions of acres of fallow farmland could be used to grow the raw material of biofuels. But turning corn stalks or switchgrass into fuel is a painstaking process and the end product is expensive and not entirely friendly to the environment.

The fungus, which has been named Gliocladium roseum, stands out in the crowd.

"This is the only organism that has ever been shown to produce such an important combination of fuel substances," said researcher Gary Strobel from Montana State University. "The fungus can even make these diesel compounds from cellulose, which would make it a better source of biofuel than anything we use at the moment."

The scientists are now working to develop its fuel producing potential, according to a paper published in the November issue of the journal Microbiology.

The fungus grows inside the Ulmo tree in the Patagonian rainforest in South America. "When we examined the gas composition of G. roseum, we were totally surprised to learn that it was making a plethora of hydrocarbons and hydrocarbon derivatives," the stuff of diesel, Strobel said. The fuel it produces has been dubbed "myco-diesel."

Cellulose, lignin and hemicellulose make up the cell walls in plants. They makes the stalks, sawdust and woodchip and cannot be digested by most living things. Some 400 million tons of this plant waste is produced ever year just from farmland, Strobel and his colleagues say. In current biofuel production, this waste is treated with enzymes called cellulases that turn the cellulose into sugar. Microbes then ferment this sugar into ethanol that can be used as a fuel.

If G. roseum can be used commercially to make fuel, a step could be skipped.

"We were very excited to discover that G. roseum can digest cellulose. Although the fungus makes less myco-diesel when it feeds on cellulose compared to sugars, new developments in fermentation technology and genetic manipulation could help improve the yield," Strobel explained. "In fact, the genes of the fungus are just as useful as the fungus itself in the development of new biofuels."

The discovery also questions assumptions about how fossil fuels are made.

"The accepted theory is that crude oil, which is used to make diesel, is formed from the remains of dead plants and animals that have been exposed to heat and pressure for millions of years," Strobel said. "If fungi like this are producing myco-diesel all over the rainforest, they may have contributed to the formation of fossil fuels."