Natural gas utilities are growing renewable natural gas (RNG) programs to meet sustainability goals and customer interest. At the other end of the supply chain, producers are working to complete projects and boost supplies of the low-carbon fuel.
NGI reviewed the fourth quarter 2023 results for some of the top players in the RNG industry and discussed with utilities what is driving interest in the fuel.
Rapid City, SD-based Black Hills Corp., which distributes natural gas to 1.1 million customers in six states, announced earlier this year an acquisition of an RNG production facility as it works to expand its nonregulated RNG business.
“Several years ago, we started to see a significant uptick in producers asking for interconnections into our gas system and really wanting to get access to the natural gas interstate pipelines,” Black Hills’ Todd Jacobs, senior vice president of Growth and Strategy, said in an interview with NGI. “One of the things that we know very well as a gas utility is how to build pipes and how to get gas to pipeline quality, and so the producers see value in the work that we do and we see value in the interconnections that they want into the system.”
Black Hills can flow up to 1.8 million MMBtu/year of RNG from interconnections with six third-party RNG producers managed through its subsidiary Black Hills Energy Renewable Resources LLC (BHERR). In February, BHERR acquired its first production facility, a landfill in Dubuque, IA, which last year produced 125,000 MMBtu of the fuel.
“One of the things that we’ve decided to do is look beyond just interconnects and into other parts of the RNG value chain,” Jacobs said. The Dubuque facility is “our first entry into non-regulated RNG production…We want to see if we can increase production at that facility over time and see if we want to expand more into similar acquisitions of production facilities.”
Black Hills also is expecting to add three additional interconnects in 2024, which would boost its flows to 2.7 million MMBtu/year. The added volumes would help to meet demand from customers enrolled in the utility’s Green Forward program, which is one prong in Black Hills’ strategy to get its natural gas distribution system to net zero greenhouse gas (GHG) emissions by 2035.
The voluntary program allows natural gas customers to purchase blocks at $5/month, the funds from which Black Hills deploys to purchase carbon offsets, RNG or maintain forests.
The program is available in Arkansas, Colorado, Kansas and Nebraska, and it would be eligible for customers in Iowa and Wyoming in April as a non-regulated program. Since Green Forward’s launch last year, the utility has enrolled 237 residential and commercial customers, and is “meeting expectations for enrollment, and in some states, exceeding block subscriptions,” a Black Hills spokesperson told NGI.
In Colorado, Black Hills also is expecting to offer RNG to customers as part of its Clean Heat Plan. From 2027-2030, under the utility’s preferred scenario, it would spend more than $7.2 million for qualified RNG.
“We see it as something based on customer demand, and ultimately, some of our customers are very much focused on sustainability issues,” Jacobs noted.
Similarly, NiSource Inc., which delivers gas and electricity to about 4 million customers in six states, also is expanding its RNG programs.
NiSource Chief Sustainability Officer Dan Creekmur told NGI, “Each NiSource company is in various stages of working with RNG producers on interconnections at multiple locations throughout NiSource’s territories.”
The utility is delivering about 4 Bcf/year of RNG to customers and has “implemented new internal processes and procedures to streamline working on RNG interconnections. This will reduce the response time to RNG producers and provide more transparency through the interconnection process.”
NiSource also offers a voluntary program that allows customers to supplement up to 100% of monthly natural gas with RNG or carbon offsets. The program, Green PathSM, has about 500 residential customers enrolled, Creekmur said.
Supplying Utilities
Management for Opal Fuels Inc., one of the largest RNG producers and distributors in North America, said they viewed the natural gas utility sector’s increasing use of the fuel as a response to sustainability targets.
“We see substantial demand outside of the transportation fuel sector right now,” said Co-CEO Jonathon Maurer during the company’s recent fourth quarter and full-year earnings call. “The transportation fuel sector is the highest value offtake, but certainly when you think about gas pipeline utilities, for one, having promised their public utility commissions to put decarbonized gas into their pipelines.”
Opal also forecast the five largest utility sector sources for RNG demand by 2030 would come from California, where utilities would require about 80 million MMBtu under state law. Other utilities ramping up RNG use could include National Grid plc (20 million MMBtu), FortisBC (20 million MMBtu), NW Natural (15 million MMBtu) and Énergir (10 million MMBtu).
Opal is expanding its RNG production projects in 2024, expecting to have 2 million MMBtu/year of design capacity in construction this year for a total of 11.6 million MMBtu/year of capacity either completed and operational or under construction. In 2023, Opal’s operational production facilities had a total annual capacity of 5.2 million MMBtu, versus 3.9 million MMBtu the prior year.
White Plains, NY-based Opal’s RNG sales to the transportation sector increased 44% year/year in the fourth quarter to 13.5 million gasoline gallon equivalents (GGE). For the full-year, RNG sales to the sector increased 49% year/year to 43.8 million GGE.
Boosting Production
Montauk Renewables LLC, meanwhile, made progress on multiple RNG projects, including some that would serve southeast gas utilities.
The Pittsburgh-based RNG project developer recently received approval from the North Carolina Utilities Commission (NCUC) for its Turkey, NC, waste-to-electricity and RNG production facility to participate in Piedmont Natural Gas’ RNG pilot program.
The waste-to-electricity facility would convert swine waste to RNG and renewable electricity, which would be purchased by Piedmont in the form of renewable energy certificates (REC). Piedmont could take to 47,000 RECs/year once the facility is completed in 2025. The utility, which serves 1.1 million natural gas customers in three southern states, also agreed to an interconnection to the RNG project to receive gas, said Montauk CEO Sean McClain during a quarterly conference.
Montauk is also working to bring online a 900 MMBtu/d landfill RNG production facility to serve a South Carolina-based utility. The project, which was expected to come online this year, has been delayed until 2026 as “the utility will require certain distribution system upgrades” required for its interconnection, McClain said.
Moving forward, Montauk is expecting RNG production from its 12 existing sites to range from 5.8-6.1 million MMBtu in 2024. Last year, Montauk produced 5.5 million MMBtu of RNG, flat with output in 2022.
Transportation Tailwinds
Meanwhile, in early March, New Mexico Gov. Michelle Lujan Grisham, a Democrat, signed into law House Bill 41, setting the stage for a clean fuels standard similar to programs in California, Oregon and Washington.
By July 2026, the New Mexico Environment Department is expected to release rules that would enable users of low-carbon transportation fuels, such as RNG, to generate credits with the goal of reducing the carbon intensity of New Mexico’s transportation sector.
Clean Energy Fuels Corp. (CLNE) CEO Andrew Littlefair said during his company’s quarterly call that “We believe this demonstrates the acceptance of these programs as a good way to address emissions issues that continue to expand. RNG as a transportation fuel is becoming more mainstream,” he added.
The Newport Beach, CA-based distributor reported higher sales volumes for both RNG and natural gas in the fourth quarter, which offset lower low carbon fuel standards (LCFS) credit and natural gas prices.
Natural gas sales reached 15.9 million GGE in 4Q2023, compared with 15.7 million GGE in the year-ago period. RNG sales during the quarter increased to 57 million GGE from 54.7 million GGE in the year-ago period.
Littlefair noted an “underlying strength” of CLNE’s fueling business is the spread between oil and natural gas, “and therefore the fuel margin and the discount we can offer to our customers to help our customers and also have a nice margin ourselves has probably never been better. I think that should come through as you look at the contribution to the distribution business this year.”
NGI’s forward fixed prices show natural gas at national benchmark Henry Hub trading below $3.000/MMBtu until December as of Thursday (March 21).
Littlefair also noted that the “overall renewable energy sector has experienced market volatility in recent months.” CLNE, which currently markets most of its RNG from third-party suppliers, is working to bring its own dairy RNG production sites online. Six projects have come online, while some have faced delays.
“Maybe it was the pandemic, maybe it was the supply chain. We saw an increase in costs in these projects from 10% to 15% to 18%,” Littlefair said. “Some of the projects that we thought we were about to put in construction we’ve had to slip based on several factors, based on LCFS credit pricing” and regulatory issues.
California’s LCFS prices averaged $74/credit in 4Q2023, according to the state’s Air Resource Board. LCFS prices decreased from the year-ago period’s $94/credit.
For 2024, CLNE forecast LCFS prices to average about $60/credit. The company is expecting to sell about 245 million GGE of RNG in 2024, more than 8% above last year’s volumes.
