Landfills are major emitters of greenhouse gases. They are the third largest source of greenhouse gas emissions in the United States, accounting for 14.4%. of the total. Landfills produce carbon dioxide and methane. Methane is the more dangerous contributor to global warming. It’s 28 times more effective at trapping heat in the atmosphere than carbon dioxide.
Although methane is harmful to the environment when emitted, it is much less harmful when burned as a fuel to generate electricity or power commercial vehicles. This leads to several energy companies invest heavily in facilities to capture landfill gas and convert it into valuable renewable natural gas (RNG).
Building RNG platforms
Energy giants P.A. (NYSE:BP), Enbridge (NYSE:ENB)And Children Morgane (NYSE:KMI) have invested heavily in recent years to buy and build RNG platforms. British energy giant BP made a splash by acquiring Archea Energy for $4.1 billion in 2022. At the time, Archea operated 50 RNG and landfill gas-to-energy facilities in the United States. BP aimed to increase Archea’s production fivefold to 30,000 barrels of oil equivalent. per day (BEP/d) by 2030.
The deal strengthened BP’s already significant biogas business, which was producing around 11,000 BOE/d at the time of the deal. The transaction is part of BP’s bold plans to make its energy transition businesses a significant contributor by the end of the decade.
Natural gas pipeline giant Kinder Morgan made a few RNG acquisitions in 2022. It paid $310 million for Kinetrex Energy, which had a 50% stake in one RNG landfill facility and three others under development. Kinder Morgan also purchased North American Natural Resources for $135 million. This company owned seven landfill gas power generation facilities, some of which it planned to convert to RNG production facilities.
The company also purchased three landfill assets from Mas CanAm for $335 million, which included an RNG facility. Kinder Morgan sees huge growth potential for its RNG platform, fueled by the idea that the United States will increase its RNG production from 0.3 billion cubic feet per day (Bcfd) last year to 3, 7 Gcfd by 2050. This gives the company a very long growth period. track.
Canadian energy infrastructure giant Enbridge has also entered the growing RNG market. Last year, it purchased seven U.S. landfill gas-to-RNG facilities from RNG developer Morrow Renewables for $1.2 billion. The deal established a U.S. RNG business for Enbridge. The company expects these facilities to contribute to its profits this year. Enbridge also invested in Divert, a company aimed at turning wasted food into RNG.
A potentially game-changing investment opportunity awaits you
Energy companies looking to enter the RNG sector (or expand their existing platforms) to have the occasion to buy a large platform. Leading waste manager in the United States MW (NYSE:WM) recently put its RNG activity up for sale. It is reportedly seeking as much as $3 billion for the company, which is comparable to the valuation multiple paid by Enbridge for the Morrow facility.
WM would sell the rights to develop RNG operations at 115 of the landfills it owns. The company had planned to invest $1.2 billion by 2025 to grow its RNG business. However, he now wants to sell the platform so he can invest that money in other areas.
The company currently generates approximately $150 million in annual revenue earnings before interest, taxes, depreciation and amortization (EBITDA). This platform could grow It is profits to more than $500 million by 2026 as more RNG projects in development come online.
WM’s RNG platform would be a great fit for an energy company looking to grow its RNG business. Among those already mentioned, Kinder Morgan seems to be the best fit. It has the financial flexibility to acquire the platform and finance the capital necessary for the development of associated projects. Acquiring WM’s RNG business would improve long-term visibility into Kinder Morgan’s earnings growth.
Ohother potential bidders could include the big oil giant Chevron (NYSE: CVX). The oil giant aims to increase its RNG production to more than 40,000 MMBtu per day by 2030. It has formed a joint venture with Brightmark to help it achieve this goal. Acquiring WM’s RNG platform would accelerate Chevron’s ability to achieve this goal, just as its $3.2 billion acquisition of Renewable Energy Group boosted its biofuels business in 2022.
Going green (and doing a lot in the process)
Energy companies are investing heavily in acquiring and building RNG platforms. These landfill gas to RNG facilities help reduce greenhouse gas emissions while generating cash flow for their owners.
The sector is seeing strong growth as energy companies build more RNG facilities at landfills across the country. RNG makes these energy stocks look like potentially more attractive investment opportunities than their fossil fuel-focused rivals because it will increase their revenues from low-carbon energy sources, making them more sustainable long-term.
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Matt DiLallo holds positions at Chevron, Enbridge, Kinder Morgan and Waste Management. The Motley Fool holds positions and recommends BP, Chevron, Enbridge and Kinder Morgan. The Motley Fool recommends waste management. The Motley Fool has a disclosure policy.
Turning Waste into Treasure: These Energy Stocks Are Betting Big on Converting Waste to Gas (and Cash) was originally published by The Motley Fool
