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.
While longer-term use of oil and gas products is in Enterprise Products' best interest, it is nice to see someone else pushing the point that we have been making for more than a year – that there is not enough material out there, in the right locations, to meet the suggested clean energy goals. It is important that this becomes better understood and accepted by a broader group than just Enterprise and C-MACC, as we will not get the needed tack in strategy, priorities, and incentives if there is a broad reliance on renewable targets that will not be met – we focus on the IPCC report in tomorrow’s ESG and Climate report.
A couple of things worth noting today that reflects our commodity index in today's daily report but also looks at some of the results below. The linked solar headline is confirmation of one of the topics that we have probably worn out over the last few months, which is that renewable power ambitions have not taken into account real limitations in the rate of equipment supply, especially solar modules. New forecasts suggest that the US expected installations of solar capacity could come in 25% short in 2022, which has implications for energy transition ambition, but also overall power supply as the shortfall will have to be made up elsewhere. It is not just a function of solar module availability but also solar module costs, because of some of the material cost inflation illustrated in exhibit 1 (see today's daily report). These shortfalls will have implications for natural gas demand in the US if it needs to fill the gap, and we have already noted that we think US natural gas prices could spike in 2022, much higher than we saw in 2021.