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Renewable Natural Gas Emerging as Serious Decarbonized Gas Contender

Last December, two giant Virginia-headquartered firms—energy company Dominion Energy and food manufacturer Smithfield Foods—announced completion of a novel renewable natural gas (RNG) facility in Milford, southwestern Utah. While the Milford facility is the first of four similar projects that Align Renewable Natural Gas—a joint venture formed in November 2018 between Dominion and Smithfield—is spearheading, it is just one of a string of new, notable developments that suggest RNG is quickly gaining ground as the energy transition unfolds.

RNG is essentially a gaseous fuel derived from biogenic or other renewable sources, which can be “upgraded” and processed to pipeline-compatible, near-pure methane. According to the World Resources Institute (WRI), landfills account for the bulk of current RNG production, mainly because they already have methane collection mechanisms. A smaller share of RNG is derived via anaerobic digestion (AD) of solid organic matter removed in the wastewater treatment process at municipal water resource recovery plants, animal manure at livestock farms, and food waste at other facilities. RNG can also come from gasification of “dry” organic wastes, such as agricultural and forestry residues.

A Low-Carbon Natural Gas

As Karen Crippen, Research and Development director at GTI’s Energy Supply & Conversion division, explained during a recent webinar, RNG differs from natural gas in that it’s “nearly all methane, none of the extra hydrocarbon seen in natural gas. It also contains some small amounts of trace constituents, depending on the biogas source. Great strides have been made in the past decade with numerous testing programs, so we now have a good understanding of what the trace constituents in RNG are,” she said. Modern biogas “upgrading” technologies typically used to achieve pipeline-quality standards include membranes, pressure swing adsorption, solvent scrubbing, and water scrubbing. While these can add to production costs, the resulting RNG can be a form of gas that combines low to negative lifecycle carbon emissions with the high energy density, storage capability, and transportability of natural gas.

These environmental attributes are attractive to both policymakers and investors alike because they offer both a pathway for the natural gas industry to meet energy sector decarbonization goals, as well as future resilience of the energy system by providing a locally sourced supply of clean energy. According to David Cox, founder and chief financial officer at the RNG Coalition, a member-led nonprofit organization dedicated to RNG advancement, the recent drive for decarbonization is fueling a boom in the production of RNG. “RNG has had a fairly consistent 30% growth rate (by volume) in recent years,” he said. “Ten years ago, there were 30 RNG facilities in North America. Today we have 157 operating facilities—with another 76 under construction.”

Investors are bullish on the low-carbon gas because it is economic today, said Stifel Equity Research in a recent white paper. “In 2020, dairy and landfill gas projects earned average price realizations of $100/MMBtu and $30/MMBtu, respectively, well above their respective average cost of supply. Based on our assessment of over 20 projects across the primary RNG feedstocks (landfill, animal manure, wastewater), we estimate the industry generates project-level [internal rate of returns (IRRs)] in the 10% to 65% range assuming strip prices, and current federal and state programs. We expect returns to improve as operators advance anaerobic digestion technology, improve operating efficiency, and better integrate digestate sales into their operations.”

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