Biomethane is the killer application Europe needs to decarbonise

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Estimated reading time ~ 10 mins

Almost two years ago, shortly after the Russian invasion of Ukraine, the European Commission presented its REPowerEU plan, a framework for how Europe was going to “rapidly reduce [its] dependence on Russian fossil fuels and fast forward the green transition.”

The plan focused on three core objectives: reducing energy consumption, diversifying sources of supply, and accelerating the rollout of renewable energy. Largely forgotten about amid the excitement of solar power, heat pumps, and renewable hydrogen, the EU’s plan also pushed for an ambitious scaling up of biomethane production.

To recap, biomethane is typically produced by upgrading the biogas that is released through the anaerobic digestion (AD) of organic waste (municipal waste, agricultural residues, food waste, etc.). It is defined as carbon neutral since only the CO2 absorbed by the organic matter during its growth can be released during its use.¹

Also known as ‘renewable natural gas’, biomethane is extremely versatile. Indistinguishable from natural gas, biomethane can displace it without the need for retrofitting existing infrastructure - pipelines, tankers, appliances etc. Current consumption is evenly split across heating for buildings, industrial feedstock, transportation fuels, and power generation. As it is zero carbon, increasing consumption of biomethane enables emitters to claim they have avoided the emissions associated with natural gas.

More investment required if biomethane is to hit 2030 target

REPowerEU set a non-binding target of at least 35 bcm of biomethane production per year by 2030, a 10-fold increase on 2022 levels. The latest data indicates that EU production increased to 3.4 bcm in 2023 (equivalent to 1.5% of EU gas consumption), and pretty much in line with recent historical growth rates of around 15%. If Europe is serious about meeting the 2030 REPowerEU target of 35 bcm, the annual growth rate will need to more than double to 33.8%.²

Source: Gas for Climate: A path to 2050, Guidehouse; Rest of Europe includes Iceland, Norway, Serbia, Switzerland, Ukraine and the United Kingdom

In short, investment in the sector will need to increase sharply. Around £18 billion has been earmarked for European biomethane investment, according to the European Biogas Association (EBA), with two-thirds of this capital scheduled to be spent between 2026 and 2030. However, the EBA estimates that €83 billion of investment is required to fully unlock biomethane potential based on the construction of an additional 5,000 medium and large-scale AD plants (see Rotten returns: Biomethane could play a big role in European decarbonisation).

Current policy support fails to make economics stack-up

The economics of biomethane production have not been favourable. The International Energy Agency (IEA) estimates that it costs European biomethane producers around $17-28 per MBtu (€55-90 per MWh) with injection and liquefaction adding ~$5 per MBtu. Europe’s producers were in a strong position during the height of the energy crisis as natural gas prices surged towards $70 per MBtu. However, it wasn’t to last. Natural gas prices have dropped below the biomethane cost base since spring 2023. And although prices have rallied on geopolitical concerns over the past month or so, this hasn’t been sufficient to move the economics in favour of biomethane.

Biomethane is a relatively mature industry that up until now has been focused on serving narrow geographical markets, supported by national government policies. Economies of scale have been possible, but it only really becomes apparent among the largest of biomethane plants, i.e., those that are 14 MW or more in size. The other main components of the overall cost includes the feedstock (lowest cost is typically municipal waste, forestry is the most expensive), and other operational expenditures.

It’s clear that something has to change if biomethane is going to meet its promise. Lets dive in.