Gas Producers Shift Operations to Landfills

Gas Producers Shift Operations to Landfills
THROOP, Pa.— The highest prices in years have made producing natural gas profitable just about anywhere. But with companies trimming their emissions and new tax breaks for waste-to-energy projects, some of the most lucrative places to extract gas are garbage dumps.
Down the western slope of Keystone Sanitary Landfill, a knot of pipes, membranes and compressors draws fumes from within the mountain of rotting trash, separates the methane from other gases and pumps it into northeast Pennsylvania’s natural-gas grid. The trash-fed gas plant, called Project Assai, is the largest of its kind, producing enough gas each day to fuel more than 65,000 homes. It is a model for what its builder, Archaea Energy Inc., is installing at landfills around the country. The daily seep of gas is a fraction of what bursts from big shale wells, but the flow from landfills doesn’t decline as quickly as it does from fractured rock. Plus, landfill methane is rewarded with renewable-fuel credits, which can be traded separately and make the price multiples of what gas from drilling fetches. And then there are tax incentives offered by the recent climate, tax and healthcare bill, which sweetened the economics for developers of biogas projects. Archaea’s ambitions are getting a boost from BP PLC, which has agreed to buy the four-year-old company for $4.1 billion, including debt. It is the largest bet of the biogas bonanza that has major oil companies, utilities, waste haulers, pipeline owners and privateequity firms digging in. Waste Management Inc., North America’s biggest landfill operator, is investing $825 million in gas projects at its properties. NextEra Energy Inc., a leading renewablepower developer, said in October that it would pay $1.1 billion for a group of landfill gas facilities. Shell PLC agreed last week to buy a European biogas producer for nearly $2 billion. When BP closes its deal in the coming weeks, it will be a big payday for Archaea’s founders—college buddies who dumped jobs on Wall Street to get into the garbage business— and its investors, notably the family behind the country’s top natural-gas producer, the Rice family, which is in line for hundreds of millions of dollars in profit. BP executives say they will apply the energy giant’s financial heft and trading know-how to lift Archaea’s annual earnings to $1 billion within five years. “We’re looking forward to taking it to the next level,” said David Lawler, who heads BP’s U.S. onshore oil-and-gas business. “It’s very material to the company.” Landfills are some of the most prolific sources of biogas, which also comes from dairies, hog farms and wastewatertreatment facilities. Methane, known commercially as natural gas, is created in landfills by microorganisms called archaea. Left alone, the methane— along with carbon dioxide, hydrogen sulfide, nitrogen and volatile organic compounds— wafts into the atmosphere, where it is a more potent greenhouse gas than carbon dioxide. Trapping and processing the methane earns credits that can be sold to refiners and oil importers who use them to meet federal renewable-fuel mandates. When BP agreed to buy Archaea, benchmark U.S. naturalgas prices were around $7 per million British thermal units, while the value of the renewable-fuel credits associated with that much methane was about $33. That means gas from Assai could sell for about $40. “Our vision of the landfill is it really should be thought of as a renewable-energy facility, not a dump,” said Archaea Chief Executive Nick Stork, who is joining BP along with his co-founders. Compared with gas that comes from drilling into rock, landfill gas is easy to extract. The challenge is isolating methane from the other vapors so that it can be burned in power plants and kitchens. Archaea’s idea was a standard design for traditionally bespoke processing plants so that they could be built cheaper and faster, 20 a year instead of two, and on smaller landfills than had been economically feasible. Assai would be the archetype. Brian McCarthy, who joined from a family investment office, made 2,000 cold calls to gas users that had pledged to decarbonize. He negotiated long-term purchase contracts with the University of California regents and two Canadian utilities and used them to obtain financing for the $160 million plant. The plan resonated with Daniel Rice IV, who invested from his family’s shale-gas fortune. Archaea’s founders were like his brothers, who lived at an Appalachian well site to learn shale drilling. The family founded Rice Energy Inc. and sold it to EQT Corp. for $6.7 billion to create the country’s largest natural-gas producer, which they now run. “We saw a whole lot of parallels in what they were doing with landfill gas and what we were able to do with shale gas,” Mr. Rice said. “Their willingness to roll up their sleeves and understand every minute detail of the business was really impressive.” Last year, with Assai under way, they merged Archaea with a larger landfill developer and took the combination public with a blank-check company. Assai was producing gas by the end of 2021, and in May a deal with Republic Services Inc. to install plants at the hauler’s landfills lifted Archaea’s prospects. Buyout firms and suitors from the energy industry, including BP, circled, according to securities filings. Archaea’s shares swooned into summer while lawmakers jockeyed over the climate bill, but they rebounded with other clean-energy stocks as the incentive-laden law came through Congress favorably for biogas developers. Bidding for Archaea picked up and BP, which has staked its future on low-carbon energy, emerged the winner
Dec 6, 2022 14:05

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