BP to buy US renewable natural gas company Archaea Energy in US$4.1b deal

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By Louis Allen - 

Multinational oil and gas giant BP (LSE: BP) has announced plans to acquire renewable natural gas (RNG) company Archaea Energy (NYSE: LFG), in a deal estimated to be worth US$4.1 billion.

RNG, otherwise referred to as biogas, is generated from organic waste in landfills of farms.

The deal between BP and Achaea marks the largest ever RNG acquisition – exceeding Chevron’s US$3.15 billion buy-out of Renewable Energy Group earlier this year and comes at a time BP vies to expand into alternative fuels.

When BP’s chief executive officer Bernard Looney took over in 2020, he pledged to slash the giant’s greenhouse gas emissions and oil and gas production, while prioritising its renewables business.

He said that the market is growing more than ever, but the supply needs to speed up to meet its demand.

“This is a product that our customers want,” he said.

“Utilities and transportation companies seeking to reduce their carbon footprint want to use biogas as a fuel.”

“There’s more demand for this product today than there is supply,” he added.

Biogas sector on the rise

The biogas sector is expected to grow 25 times larger by 2050.

Archaea operates 50 RNG and landfill gas-to-energy facilities across the United States.

According to Mr Looney, BP aims to grow Archea’s output by five times before 2030, to 30,000 barrels of oil equivalent per day (boed).

BP has a large biogas business already producing around 11,000boed.

Archaea says the deal will enable it to reach more customers for RNG from waste sites through BP’s large platform.

What the deal signals for BP’s future

According to a BP’s announcement, bioenergy is one of five strategic transition growth engines that it hopes to grow rapidly through the current decade.

Undoubtably, BP’s acquisition of Archaea will expand its presence in the US biogas industry, while also allowing it to reduce the carbon intensity of its energy products in the meantime.

Mr Looney said the acquisition would add significant value to the business.

“It will accelerate our key bioenergy growth engine, creating a real leader in the biogas sector, and support our net zero ambition,” he said.

“Investing with discipline into the energy transition, creating further value through integration – this is exactly what bp’s transformation into an integrated energy company is all about.”

As the leading marketer of natural gas in North America, and a customer base in favour of greater decarbonisation efforts, the demand for natural gas opens the door to opportunities for growth into areas such as LNG, renewable hydrogen, and power for EV charging.

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