A major source of the oceanic CO2 is the atmosphere http://en.wikipedia.org/wiki/Ocean_acidification. It's not perfect but could be much better than burning dinosaurs.

The carbon in the fuel comes from CO2 which is captured out of sea water.

The problem with fossil fuels is that they transfer old carbon which used to be stored underground into the atmosphere.

This process only uses carbon that is already part of the active carbon cycle, so it is carbon neutral as long as the electricity source is.

It doesn't seem it would. The CO2 is from seawater; burning releases it into the air. Since seawater has many times the density of CO2 as air, it would definitely be a net greenhouse gas process.

However comparing making liquid fuel this way, with drilling refining and shipping gasoline, it may be a great improvement!