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"Science fiction writers foresee the inevitable, and although problems and catastrophes may be inevitable, solutions are not."
- Isaac Asimov

Culture Tank  
  Germs that eat garbage and produce oil.  

In the novel, the main character, Bob Kinnaird, lives on an island that supplies it's own oil through a series of "culture tanks" that create fuel oil from waste.

"They call 'em culture tanks. They have bugs -- germs -- growing in them; germs that eat pretty near anything, and produce oil as a waste product. That's the purpose of the whole business. We dump everything that's waste into the tanks, pump the oil off the top, and every so often clean the sludge out of the bottom -- that's a nasty job."
From Needle, by Hal Clement.
Published by Not known in 1950
Additional resources -

Bio-diesel and other fuels from organic waste have been around for a long time but almost 60 years ago, Clement had an island relying on it and creating a surplus for sale.

Thanks to Mike for writing in with the reference and the quote for this one.

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Additional resources:
  More Ideas and Technology from Needle
  More Ideas and Technology by Hal Clement
  Tech news articles related to Needle
  Tech news articles related to works by Hal Clement

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  - Biofuel From Algae
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  - Bacteria Now Make Biofuel Like Oil
  - Engineered Bacteria Produces Gasoline
  - Oil from Algae - Can It Be Done?
  - A New Way To Run Into Things

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