Gas the bridge over troubled water? What are the global initiatives push for increased biogas and biomethane production?

This Insights article is a shorten version of our recent Global initiatives push for increased biogas and biomethane production April 2023 commentary, part of our Gas and LNG Market Analytics suite. Our clients can access the Client Portal.

Benefits of biogas

Biogases are set to play an important role in delivering global long-term energy security and climate change mitigation. The potential benefits of biogas use include emissions reduction, contributing to a circular economy, flexibility to balance intermittent renewable energy generation, and dealing with the increasing amount of organic waste produced by modern societies. Biomethane, also called renewable natural gas (RNG), is an upgraded and purer version of biogas, holding the same quality as pipeline natural gas. It can directly substitute natural gas and can be readily stored and distributed using existing gas infrastructure for end-users. For most countries, production and consumption of biomethane is well balanced and cross-border trade is limited.

The need for policy support

Going forward, increased production of biogas on a global scale will primarily be driven by policy support, cost competitiveness and feedstock availability. Current policy support in individual European countries triggers accelerated growth in biogas and biomethane production. However, the target of 35 billion cubic meter (Bcm) of biomethane production by 2030, according to Europe’s REPowerEU plan, seems unlikely to be reached with the current regulatory framework. Alongside Europe, the Inflation Reduction Act biogas in the US also provides the biogas industry in that country with various tax credits and funding. From a cost perspective, biomethane business cases vary significantly across regions and technology, and it is currently outcompeted by natural gas. However, we do expect the cost gap to narrow over time as technology, carbon markets and the regulatory environment evolves. On the other hand, the advantages of biomethane from greenhouse gas emissions (GHG) reduction outweigh the current production costs. Feedstock potential available to meet accelerated growth of biogas on a global scale is sufficient. Yet, bottlenecks and concerns with increased production going forward include increased costs with increased demand, and even transportation costs if it cannot be sourced locally.

Biogas can be produced from decomposition of renewable organic material sources such as biomass and waste. These residues are placed in a digester in the absence of oxygen. According to the European Biogas Association, biogas holds a methane (CH4) content of 45% to 85% and other impurities such as carbon dioxide (CO2), water (H2O) and hydrogen sulfide (H2S). Due to impurities, biogas does not hold the same quality in terms of energy intensity as pipeline quality natural gas. The lower heating value (LHV) of biogas can vary from 16 megajoules per cubic meter (MJ/m3) to 28 MJ/m3. It can, however, be used directly as a valuable local source of electricity, heating and cooking, or as biofuel in the transport sector.

The promise of biomethane

Biomethane, with a methane content of over 90%, is an upgraded and purer version of biogas. Its main value proposition is its capability to displace traditional natural gas in various industrial applications and buildings, assuming that carbon taxes and the carbon market regulatory environment will be getting stricter in future. However, as natural gas lifecycle emissions are dominated by end-fuel combustion, the environmental impact of the consumption of biomethane alone is not crucial. However, when we transition to biomethane, we will still face the same emission factors for that last step in the value chain. The area of circular economy with a much more material true impact on GHG emissions is the capture and utilization of the methane that would otherwise be emitted into atmosphere from manure and landfill sites. The quality of the biogas and biomethane depends on the type of feedstock and digester technology.

Most of the biomethane produced today is made by upgrading biogas. The upgrading process mostly involves the removal of biogenic CO2, which can further be utilized (CCU) or stored (CCS). In addition to CO2, the anaerobic digestion process leaves a solid organic matter, called digestate, which is rich in nutrients and can be used as fertilizer in the agricultural industry. The use of digestate can also enable a reduction in the use of synthetic fertilizer going forward.

Europe, REPowerEU and biomethane

Although European gas demand is on a declining trend, Europe will still need natural gas in the medium-to-long term. European Union (EU) policymakers have been striving to cut dependence on Russian gas over the last year, and in response, the European Commission’s REPowerEU Strategy ensured that Russian gas will be replaced with liquefied natural gas (LNG) and alternative pipeline imports. Since biomethane can directly substitute natural gas, increased production would, like reduced emissions, reduce the reliance of Russian imports and increase energy security.

The REPowerEU action plan also proposed the deployment of 35 Bcm per annum (Bcma) of sustainable biomethane by 2030. To reach the 35 Bcma target, biomethane must sustain a substantial growth until 2030. This would require an acceleration at scale, with more appealing support mechanisms for biogas/biomethane projects. In 2023, the EU also funded the Biomethaverse project aimed at increasing biomethane production potential by diversifying the technology available for biomethane production in Europe, reducing production costs, and contributing to the uptake of biomethane technologies. By 2030, the project is expected to boost European biomethane production by 66% from current levels. The project is also expected to reduce the biomethane production costs by 44%, making it more affordable to produce pipeline quality gas.

Alongside REPowerEU, major European countries have set clear objectives to increase the share of both biogas and biomethane in the power mix, such as Germany, France Denmark and the UK. In general, governmental incentives have been supportive in Northwest Europe – where most biomethane plants are located, as seen on the map in Figure 2 below – while there has been a lack of governmental support in the south, such as in Italy. However, over the last few years there has been more governmental interferences in Italy, introducing the “New Biomethane Decree”, offering 40% capital contribution and feed-in tariffs to the construction of new biomethane plants.

The largest natural gas consumer in Europe, Germany, which has gas as the primary source of heating in homes, is the undisputed biogas market leader in Europe, followed by the UK. Combined they account for around 58% of total biogas production on the continent. European biomethane production capacity alone reached 32.5 terawatt-hours (TWh) per annum in 2021. Germany is the biggest biomethane producer in Europe, with its 241 plants and a total of 10.7 TWh per annum of production capacity in 2021. However, France hosts the largest number of biomethane plants, with 541 upgrading sites and a production capacity of 9.8 TWh per annum in 2022. From a feedstock and business case perspective, Rystad Energy assesses that Germany, Italy, France, Poland and Spain will drive most of the growth in the second half of this decade.

Close-up on the US

In the US, there are three main producing technologies in the biogas industry, with over 2,300 production sites. Biogas produced at wastewater treatment plants holds the biggest share, with 1,269 plants, followed by 645 landfill gas projects and 332 livestock anaerobic digesters. In addition to producing biogas, 8.4% of these facilities upgrade their biogas into biomethane (known in the US as RNG).

The biogas industry in the US is one of the sectors receiving various tax credits and funding from the Inflation Reduction Act, passed last year. The Act’s ‘Rural Energy for America Program’ (REAP) provides loan financing and grant funding to agricultural producers and small rural businesses, specifically mentioning anaerobic digesters. Out of the 332 anaerobic digester facilities on farms, 28 of them upgrade their biogas into renewable natural gas/biomethane.

Electricity generated from landfills will receive a production tax credit (PTC), through the ‘Production Tax Credit for Electricity from Renewables’ PTC. Landfill projects collecting biogas are also eligible for the Act’s ‘Funding to Address Air Pollution: Methane Monitoring’ program, provided to decrease the amount of methane being flared.

Although the production costs of biomethane remain higher than traditional fossil gas, corporations are increasingly shifting priorities and are looking for low-carbon solutions in all aspects of their businesses, given the increased focus on environmental, social and corporate governance (ESG) metrics and energy transition. Lowering costs requires an acceleration at scale, with even more appealing support from governmental funding for biogas/biomethane projects and feedstock availability. 

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