The Archaea chart below summarizes one of the strong positives we have discussed for a while: renewable natural gas (RNG) demand is likely to outstrip supply in the long term. Using RNG is a quick fix for many processes, and too many people are likely relying on availability against a challenging supply backdrop. Large landfills and dairy farms are likely to be tapped for RNG, and many of the smaller opportunities will also work if they are logistically well placed. But at the same time, you have investments to lower the amount of waste moving into landfills, and there are also pressures on the dairy and beef farmers to reduce the methane produced. We are very bullish on the RNG producers as we believe that their products will be in short supply, and as long as they are not exposed to input cost inflation, they should see strong margins. In addition to Archaea, Gevo announced earnings yesterday and discussed the successful start-up of its (relatively small) RNG project in Iowa.
Source: Archaea Energy – 1Q22 Earnings Result Presentation, May 2022
Both Origin and Gevo reported earnings yesterday, and both discussed rising demand for their future production. In both cases, the companies are looking at demand IF they are successful in securing funding and building sufficient capacity. Both are now challenged with building an operating base to satisfy their contracts. The current financial markets may make it challenging for both companies and others to get financing near-term, but there is significant capital targeting green projects sitting on the sidelines today and if we do see an economic slowdown some of the commodity material shortages may dissipate, taking some of the perceived risk out of the projects – see our research - Is A Global Recession The Best Hope For Renewable Energy Goals?
Source: Gevo – May Investor Presentation, May 2022
Source: Origin Materials – 1Q22 Earnings Result Presentation, May 2022
