Landfills are the largest emitters of greenhouse gases. They are the third largest source of greenhouse gas emissions in the US, accounting for 14.4% of the total. Landfills produce carbon dioxide and methane gas. Methane is the more dangerous contributor to global warming. It is 28 times more effective at catching heat in the atmosphere then carbon dioxide.
Although methane gas is harmful to the environment when released, it is much less harmful when burned as fuel to generate electricity or power commercial vehicles. That leads to several energy companies to invest heavily in facilities to capture landfill gas and convert it into valuable renewable natural gas (RNG).
Building RNG platforms
Energy giants BP (NYSE:BP), Enbridge (NYSE: ENB)And Kinder Morgan (NYSE: KMI) have invested heavily in purchasing and building RNG platforms in recent years. British energy giant BP made the biggest splash, acquiring Archea Energy for $4.1 billion in 2022. At the time, Archea operated 50 RNG and gas-to-energy landfills in the US. BP wanted to increase Archea production fivefold to 30,000 barrels of oil equivalent per day (BOE/d) by 2030.
The deal strengthened BP’s already large biogas operations, which produced approximately 11,000 BOE/d at the time of the deal. This transaction is part of BP’s bold plans to grow its energy transition business into meaningful contributors by the end of the decade.
Natural gas pipeline giant Kinder Morgan made a pair of RNG acquisitions in 2022. It paid $310 million for Kinetrex Energy, which had a 50% stake in an RNG dump and three more in development. Kinder Morgan also bought North American Natural Resources for $135 million. That company owned seven landfill gas-to-power facilities, some of which it planned to convert into RNG production facilities.
The company also purchased three landfills from Mas CanAm for $335 million, including an RNG facility. Kinder Morgan sees enormous growth potential for its RNG platform, fueled by the vision that the US will grow its RNG production from 0.3 billion cubic feet per day (Bcfd) last year to 3.7 Bcfd by 2050. That delivers the company has a very long growth trajectory. landing strip.
Canadian energy infrastructure giant Enbridge has also entered the growing RNG market. Last year it bought seven U.S. landfill gas-to-RNG facilities from RNG developer Morrow Renewables for $1.2 billion. The deal created a U.S. RNG company for Enbridge. The company expects the facilities to contribute to earnings this year. Enbridge also invested in Divert, a company that aims to convert wasted food into RNG.
A potentially game-changing investment opportunity awaits
Energy companies looking to get into the RNG business (or expand their existing platforms) have the opportunity to buy a big platform. Leading US waste management company W.M (NYSE: WM) recently puts its RNG business up for sale. It is reportedly asking for up to $3 billion for the company, similar to the valuation Enbridge paid for the Morrow facilities.
WM would sell the rights to develop RNG operations at 115 of the landfills it owns. The company planned to invest $1.2 billion through 2025 to grow its RNG business. However, it now wants to sell the platform so it can invest that money in other areas.
The company currently generates approximately $150 million annually earnings before interest, taxes, depreciation and amortization (EBITDA). This platform could grow are Profits will grow to over $500 million by 2026 as more RNG projects in development come online.
WM’s RNG platform would be ideal for an energy company looking to grow its RNG business. Of those already mentioned, Kinder Morgan resembling the best fit. It has the financial flexibility to acquire the platform and finance the capital needed to build out the associated projects. The acquisition of WM’s RNG business would enhance Kinder Morgan’s long-term earnings growth outlook.
Oother potential bidders could be including the big oil giant Chevron (NYSE: CVX). The oil giant aims to grow its RNG production to more than 40,000 MMBtu per day by 2030. To achieve that goal, the company has formed a joint venture with Brightmark. Acquiring WM’s RNG platform would accelerate Chevron’s ability to achieve that goal, just as its $3.2 billion acquisition of Renewable Energy Group boosted its biofuels business in 2022.
Going green (and making a lot of it)
Energy companies are investing heavily in acquiring and expanding RNG platforms. These landfill gas-to-RNG facilities help reduce greenhouse gas emissions while generating cash flow for their owners.
There’s a lot of growth ahead for the sector as energy companies build more RNG facilities at landfills across the country. RNG makes these energy stocks look like potentially more attractive investment opportunities compared to their fossil fuel-focused rivals, as their revenues from low-carbon energy sources will increase, making them more sustainable in the long term.
Should you invest $1,000 in Enbridge now?
Consider the following before purchasing shares in Enbridge:
The Motley Fool stock advisor The analyst team has just identified what they think is the 10 best stocks for investors to buy now… and Enbridge wasn’t one of them. The ten stocks that survived the cut could deliver monster returns in the coming years.
Think about when Nvidia created this list on April 15, 2005… if you had $1,000 invested at the time of our recommendation, you would have $578,143!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including portfolio building guidance, regular analyst updates, and two new stock picks per month. The Stock Advisor is on duty more than quadrupled the return of the S&P 500 since 2002*.
View the 10 stocks »
*Stock Advisor returns May 13, 2024
Matt DiLallo has held positions at Chevron, Enbridge, Kinder Morgan and Waste Management. The Motley Fool holds positions in and recommends BP, Chevron, Enbridge and Kinder Morgan. The Motley Fool recommends waste management. The Motley Fool has a disclosure policy.
Turning Waste into Treasure: These Energy Stocks Are Betting Big on Turning Waste into Gas (and Cash) was originally published by The Motley Fool
