Landfill gas-to-RNG output poised to multiply by 2050

Global consulting and research firm Wood MacKenzie, which has a United States office in Houston, says landfill gas (LFG) has become the most popular feedstock option for renewable natural gas (RNG) production, but project pretax breakeven prices can range, with success relying heavily on location and scale.

A report titled “Trashing your way to a cleaner future: landfill gas as a feedstock for RNG in North America” finds that LFG-to-RNG capacity has nearly doubled in the last five years, and the prospect for more activity is considerable since, according to Wood MacKenzie, only 10 percent of LFG resource potential currently is being tapped in North America.

“The LFG-to-RNG sector has been extremely active in the last two years with new project ramp-ups, blockbuster M&A deals and new players entering the market,” says Dulles Wang, director of research at Wood Mackenzie.

“The sector is also consolidating, with the top seven developers making up more than 60 percent of the market today. As RNG is a direct substitute for fossil-based natural gas, there is tremendous potential for future growth and its prospects in carbon reduction goals.”

The report cites four main factors that can contribute to the profitability of an LFG-to-RNG project: 1) economies of scale; 2) location, since “an RNG upgrader’s proximity to a landfill has the largest impact on the interconnection costs,” and states with more stringent environmental regulations can increase costs; 3) selecting upgrader technology that offers a lower installation cost; and 4) operational efficiency, since operating costs can range from 3 percent to over 60 percent of capital costs, with a significant portion coming from utility costs.

“When factoring all of these drivers into play, making an LFG-to-RNG project work requires collaboration between landfill owners and RNG developers, and costs vary significantly from project to project,” Wang says.

“Despite cost variations, LFG-to-RNG is the lowest-cost option for RNG production, and the subsidy value of RNG could reach over $20 per million British thermal units (mmbtu) when considering stacking of different environmental attributes.”

According to the report, currently RNG pretax breakeven price range from $4 to $35 per mmbtu, with an average of $15 per mmbtu.

Wood Mackenzie forecasts LFG-to-RNG production could reach 2.2 billion cubic feet per day (bcfd) by 2050, up from 0.3 bcfd today. That figure takes into account that material in North America will continue to head to landfills.

“With population growth, we expect more landfills,” Wang says. “Landfills are one of the largest sources of methane, and increased scrutiny by governments on methane regulation will likely boost more LFG-to-RNG conversions. Not to mention, policy incentives have targeted the RNG industry as demand for it rises—especially in the transport sector.”

The relatively lower carbon intensity (CI) of the LFG-to-RNG process on a life cycle basis compared with conventionally produced natural gas provides the economic justification for subsidies, Wang says, adding, "We expect more LFG-to-RNG projects to take off due to attractive economics.”

Challenges still exist, such as the relatively high CI compared with other RNG technologies potentially driving investors away as they seek higher returns from subsidies.

Challenging economics for small-scale or more remote projects may also hinder the pace of long-term project development as costs rise for second tier resources, Wood MacKenzie says.

“Despite some challenges and unknowns, we see a bright future for LFG-to-RNG,” Wang says. “RNG will play an increasing role in decarbonizing North American economies, and with LFG-to-RNG capacity nearly doubling in the last five years, we expect the trend to continue in the foreseeable future.”