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.
We have noted several renewable natural gas initiatives in the US and the data in the chart below shows how much methane is emitted by agriculture – the largest source after natural leakage. The agriculture-based RNG projects only make economic sense today where you have access to very large farms, where customers are willing to pay a premium, or where you qualify for incentives. That said we expect more projects, with growth stories at companies like Archaea Energy dependent on building new projects. The chart also shows how much emissions flow from the energy industry and this has been a more acute focus for remediation since COP26. See more in today's ESG and Climate report.