Hot new PSPC turns trash into cash, and investors are clamoring for the shares.
Energy of archaea
(ticker: LFG), which went public through a merger with a special purpose acquisition company, or SPAC, began trading on Thursday. Its shares roughly doubled between the announcement of the PSPC deal in April and the market debut on Thursday. They were up 9.2% on Thursday, although they were down 8% on Friday.
Archaea, which is now worth $ 2.2 billion, already has positive cash flow and sees the potential to increase its earnings before interest, taxes, depreciation and amortization (Ebitda) tenfold by 2025.
Renewable natural gas is still a small market, but one that is attracting disproportionate attention. Currently, approximately 0.15 billion cubic feet is produced each day, in a total US natural gas market of 100 billion cubic feet.
(CLC) announced this week that renewable natural gas will be an important part of its low-carbon business plan.
If all emissions from landfills in the United States were trapped and tapped for renewable gas, they would amount to around two billion cubic feet, Archaea CEO Nick Stork said in an interview. If other facilities like sewage treatment were added, it could rise to four or five billion cubic feet, he added.
PSPC was originally headed by Daniel Rice, the former CEO of the traditional natural gas company Rice Energy before being sold to
(EQT) for $ 10 billion in 2017. The SPAC agreement combined the private companies Archaea Energy and Aria Energy, which have more than 30 projects across the country using gas from landfills to generate electricity and produce electricity. fuel for vehicles. Archaea is expected to be the nation’s largest producer of renewable natural gas when it completes a new facility near Scranton, Pa., Next year.
The founders of Archaea originally owned a landfill in Pennsylvania who were looking for a way to mine and sell the gas produced by that landfill. About half of the gas produced by landfills is methane and 35% is carbon dioxide. By processing the gas, it can either be used to generate electricity or be pumped through pipelines that normally transport traditional natural gas.
Archaea has a joint venture with
(BP) and deals with supplying gas to institutions like the University of California. Renewable natural gas allows companies to meet carbon targets or state mandates while using infrastructure such as pipelines and natural gas-fired power plants that they may already have in place.
Nonetheless, renewable natural gas will have to compete with other energy sources in terms of price, which could discourage some buyers. That’s about three to five times the price of natural gas at Henry Hub, the country’s benchmark spot price. Stork said the actual premium that industrial or commercial players pay is slightly lower because they don’t get the actual price from the Henry Hub.
Stork argues that renewable natural gas is a good deal for buyers because they can keep their current infrastructure instead of having to build new wind or solar power plants which can involve substantial capital costs.
“What we’re saying is that at the end of the day, the company is supporting this price appreciation to keep this energy infrastructure in place, but to do it responsibly – so that they can sleep well the next day. night and reap the benefits of this energy. density and convenience of natural gas, ”he said.
About 60% to 70% of Archaea’s volumes are expected to be contracted under long-term agreements that last for decades. The rest will be marketed in the shorter term, allowing the company to profit from the price increases. Demand is currently exceeding the company’s expected volumes in 2025, Archaea said in a presentation.
Obviously, the investment community is interested in this type of potential growth and the topic of clean energy.
Archaea can be appealing because it’s “an ESG story that makes economic sense with real market demand existing today versus something potential – like hydrogen maybe – that makes it sound like that’s 12 to 24 months away, ”Stork said.
Write to Avi Salzman at [email protected]