Biogas has kept the bankers busy
In a dull year for corporate deals, biogas stands out for securing $8 billion of investments. Last month’s announcement that Shell had acquired privately owned Danish biogas producer Nature Energy for $2 billion, followed a slew of deals in October including BP’s acquisition of US based Archea Energy for $4 billion, NextEra Energy’s acquisition of a $1 billion portfolio of US biogas assets, and Macquarie GIG buying German developer BayWa r.e. Bioenergy.
What is biogas and why is it attracting so much interest?
Biogas is a gas produced by anaerobic digestion of organic material in an oxygen free environment. You would cross the street to avoid most of the material it is based on – sewage sludge, animal manure and solid waste from forestry, crops and municipal rubbish are some of the main ingredients. The waste has little secondary value and otherwise needs to be disposed of safely but has a promising energy value.
Depending on the feedstock, biogas typically contains 45% to 75% methane by volume, with most of the remainder being CO₂. The raw gas can be used directly to produce electricity and heat or upgraded to biomethane. Today around 90% of biomethane is made from upgrading biogas.
A recent podcast touted biogas as the ‘Dunkirk’ of the energy sector because it tends to be produced in dispersed and different sized plants, many small by energy industry standards. However, its use aligns well with the quest for domestic and sustainable energy materials. The raw materials can be found in pretty much every country and are processed in modular plants that are quick and relatively inexpensive to build. It is carbon neutral being based on waste and net negative when coupled with carbon capture. Used in a solid oxide fuel cell, it can generate efficient, flexible and decentralised power with the side benefit that it delivers a very pure carbon dioxide stream that can be captured and reused for alternative fuels.
So why the growing commercial interest? Economic and policy factors are flashing green.
Firstly, biogas is a very under exploited energy asset with global annual production sitting at 1.5 Exajoules (EJ) or 35MTOE. In energy terms this sizes it at only 1% of global natural gas (145EJ) and 0.25% of total energy production (600 EJ). Forecasts by the IEA suggest a 10-fold increase in demand by 2040 is possible and that the technical potential could be 20x todays level.
Secondly, it has become more cost competitive. It costs around €45-60/MWh to produce biomethane, which means it has been relatively expensive in the past but is relatively attractive now the European natural gas price (EU TTF) stands at €132/MWh. Oil majors are taking the view that Europe prices will not return to pre-2022 levels and with Asian countries’ planning coal to gas switching as part of the energy transition bio-methane will be on their radars. America has more competitive natural gas prices but also economies of scale and policy tailwinds.
Announced earlier this year, the REPOWER-EU plan targets 35bcm (or roughly 1.3EJ) of biomethane consumption by 2030, four times today’s level. Meeting this demand is expected to require the construction of 5,000 new biomethane plants across the EU and €80 billion in capital investment. Not to be outdone the US IRA climate support bill announced this summer provides incentives across the entire biogas value chain from the collection and transport of raw materials, to production of the energy gas and its use in fuel cells.
As the recent commercial activity in the sector proves when policy support, economic factors and private enterprise come together it provides powerful momentum even for energy materials based on humble origins.