THROOP, Pa.— The highest
prices in years have made producing natural gas profitable
just about anywhere. But with
companies trimming their
emissions and new tax breaks
for waste-to-energy projects,
some of the most lucrative
places to extract gas are garbage dumps.
Down the western slope of
Keystone Sanitary Landfill, a
knot of pipes, membranes and
compressors draws fumes from
within the mountain of rotting
trash, separates the methane
from other gases and pumps it
into northeast Pennsylvania’s
natural-gas grid.
The trash-fed gas plant,
called Project Assai, is the largest of its kind, producing
enough gas each day to fuel more than 65,000 homes. It is
a model for what its builder,
Archaea Energy Inc., is installing at landfills around the
country.
The daily seep of gas is a
fraction of what bursts from
big shale wells, but the flow
from landfills doesn’t decline
as quickly as it does from fractured rock. Plus, landfill methane is rewarded with renewable-fuel credits, which can be
traded separately and make the
price multiples of what gas
from drilling fetches. And then
there are tax incentives offered
by the recent climate, tax and
healthcare bill, which sweetened the economics for developers of biogas projects.
Archaea’s ambitions are getting a boost from BP PLC,
which has agreed to buy the four-year-old company for $4.1
billion, including debt. It is the
largest bet of the biogas bonanza that has major oil companies, utilities, waste haulers,
pipeline owners and privateequity firms digging in.
Waste Management Inc.,
North America’s biggest landfill operator, is investing $825
million in gas projects at its
properties. NextEra Energy
Inc., a leading renewablepower developer, said in October that it would pay $1.1 billion for a group of landfill gas
facilities. Shell PLC agreed last
week to buy a European biogas
producer for nearly $2 billion.
When BP closes its deal in
the coming weeks, it will be a
big payday for Archaea’s
founders—college buddies who
dumped jobs on Wall Street to
get into the garbage business—
and its investors, notably the
family behind the country’s top
natural-gas producer, the Rice
family, which is in line for hundreds of millions of dollars in
profit.
BP executives say they will
apply the energy giant’s financial heft and trading know-how
to lift Archaea’s annual earnings to $1 billion within five
years.
“We’re looking forward to
taking it to the next level,” said David Lawler, who heads BP’s
U.S. onshore oil-and-gas business. “It’s very material to the
company.”
Landfills are some of the
most prolific sources of biogas,
which also comes from dairies,
hog farms and wastewatertreatment facilities. Methane,
known commercially as natural
gas, is created in landfills by
microorganisms called archaea.
Left alone, the methane—
along with carbon dioxide, hydrogen sulfide, nitrogen and
volatile organic compounds—
wafts into the atmosphere,
where it is a more potent
greenhouse gas than carbon dioxide. Trapping and processing
the methane earns credits that
can be sold to refiners and oil
importers who use them to
meet federal renewable-fuel
mandates.
When BP agreed to buy Archaea, benchmark U.S. naturalgas prices were around $7 per
million British thermal units,
while the value of the renewable-fuel credits associated
with that much methane was
about $33. That means gas
from Assai could sell for about
$40.
“Our vision of the landfill is
it really should be thought of
as a renewable-energy facility,
not a dump,” said Archaea
Chief Executive Nick Stork,
who is joining BP along with
his co-founders.
Compared with gas that
comes from drilling into rock,
landfill gas is easy to extract.
The challenge is isolating
methane from the other vapors
so that it can be burned in
power plants and kitchens.
Archaea’s idea was a standard design for traditionally
bespoke processing plants so
that they could be built
cheaper and faster, 20 a year
instead of two, and on smaller
landfills than had been economically feasible. Assai would
be the archetype.
Brian McCarthy, who joined
from a family investment office, made 2,000 cold calls to
gas users that had pledged to
decarbonize. He negotiated
long-term purchase contracts
with the University of California regents and two Canadian utilities and used them to obtain financing for the $160 million plant.
The plan resonated with
Daniel Rice IV, who invested
from his family’s shale-gas fortune. Archaea’s founders were
like his brothers, who lived at
an Appalachian well site to
learn shale drilling. The family
founded Rice Energy Inc. and
sold it to EQT Corp. for $6.7
billion to create the country’s
largest natural-gas producer,
which they now run.
“We saw a whole lot of parallels in what they were doing
with landfill gas and what we
were able to do with shale
gas,” Mr. Rice said. “Their willingness to roll up their sleeves
and understand every minute
detail of the business was really impressive.”
Last year, with Assai under
way, they merged Archaea with
a larger landfill developer and
took the combination public
with a blank-check company.
Assai was producing gas by
the end of 2021, and in May a
deal with Republic Services
Inc. to install plants at the
hauler’s landfills lifted Archaea’s prospects. Buyout firms
and suitors from the energy industry, including BP, circled,
according to securities filings.
Archaea’s shares swooned
into summer while lawmakers
jockeyed over the climate bill,
but they rebounded with other
clean-energy stocks as the incentive-laden law came
through Congress favorably for
biogas developers. Bidding for
Archaea picked up and BP,
which has staked its future on
low-carbon energy, emerged
the winner