I don't think it has to be very deep to be a problem. If you're talking about flooding an area the size of the state of Iowa to a depth of several inches, and then replacing the huge amount of water that evaporates every day, you're talking about water use on a scale that is mind boggling. We're already having trouble getting enough fresh water to irrigate the crops we already grow.

Profitable algae to biofuels has not been accomplished. It is like solar photovoltaic cells and making electricity. It can be done but is not practical or profitable on a large scale compared to more competitive power generation. Cellulosic ethanol is so far from profitable it might bankrupt any nation attempting to convert to it.