Renewable Natural Gas - A Serious Consideration for the Future as an Investment and Tradable Fuel Source?

What is renewable natural gas (RNG)?

RNG is mainly produced by processing methane from agricultural waste, food waste and landfills. It can even be derived from sewage.

In this sense, it reduces environmental pollution as it converts methane (CH4) into purified carbon dioxide (CH4 is 28x more potent at trapping heat than CO2), and also repurposes existing waste resources. 

This creates an idea of a circular economy, as often these feedstocks are unwanted and their removal typically paid for under waste disposal circumstances.

It is important to note that RNG is fundamentally the same as natural gas, and is compatible with existing infrastructure (e.g. the natural gas pipeline network for sending gas across the states). 

Although because of the sources it is produced from, RNG can still be considered a new type of fuel in the context of diversifying domestic energy production. 

Note: Feedstock means the raw material, in this case waste, that is used to process RNG.

Natural gas long term demand + supply, and potential for growing costs associated with carbon output:

Seeing as RNG is effectively a carbon competitive version of natural gas, it is important to do some analysis on the long term demand and supply for gas, whilst considering the growing costs of carbon output.  This should help us better understand the feasibility for RNG.

Important note: RNG is ‘carbon competitive’ because it is taking out methane that would otherwise be vented into the atmosphere, meaning it is considered to reduce carbon under current and (hopefully) prospective policies despite being a carbon based product. To be discussed later in the article*

United states - plenty of gas, but less home-grown demand

US natural gas demand is anticipated to move downwards by 2040, 93 billion cubic feet a day in 2032 to 81 million by 2040 (EIA, 2025). This dip is attributed to clean energy shifts in power plants and electric pumps for domestic use. 

Shale inventories are still ample in the US, and can still pump more than the country needs, and a wave of Gulf-Coast export terminals being developed (Henry Hub) should increase LNG shipments by 2040. Since supply stays larger than the US demand, the Henry Hub gas price is less likely to explode/grow massively, although regional spikes can still happen in extreme weather and logistical constraints.

European Union - using far less gas and losing its own production 

The EU’s fit-for-55 climate laws aim to cut natural gas consumption by 30% by 2030 (European Commission, 2025). Measures include faster roll-outs of electric heat pumps, stricter efficiency rules, and more renewables (which could feasibly include RNG as part of carbon cutting policies, to be discussed later in the article*).

The regions biggest onshore field, Groningen in the Netherlands, is being permanently shut to limit seismic activity from drilling (Government NL, 2024). Europe will still have to rely on importing natural gas and LNG, but total gas demand is shrinking, so prices should generally be softening.

The major caveat - carbon cost and the price tag that keeps climbing

US: Federal methane penalty - $900 for every tonne of methane and set to rise by $1500 (CRS, 2024). On top of that, regional carbon markets make emitters buy permits. For example, California charges $25.87 per tonne of CO2, and California’s rules automatically lift the price floor by 5% + inflation every year.

EU: The EU emissions trading system requires companies to buy permits (and would have to buy more from the free market if they go over their emission levels), which equates to about €71 per tonne of CO2, and prices could be rising past €100 before 2030 as the supply of permits shrinks each year and a second carbon market for buildings and road transport comes online in 2027 (Reuters, 2025).

Bottom line: Wether you burn natural gas in the US or Europe, the built-in pollution surcharge is set to ratchet higher every year - making the true cost of using natural gas more expensive even if the fuel itself doesn’t become more expensive due to supply/demand factors.

Important note: the future is unknown, these are my predictions based on personal research. Feel free to comment below if you disagree or have different insights.

Existing Renewable Natural Gas profitability

• Still significantly higher to produce than natural gas per unit - around 3-8x the cost. Processing costs mainly drive this, with anaerobic digesters being the highest to run (e.g. processing agricultural waste), and landfills the lowest as the landfill itself is effectively the ‘digester’.

Agricultural waste itself to produce RNG would be a minimal cost or in fact profit (e.g. farmer pays for it to be taken), as in many cases it would cost farmers more to dispose of it through other means.

When US landfill charges run $20-80 per tonne (Biocycle, 2023), an RNG plant that sits nearby can take the same waste for a small gate fee (or even pay the farmer), turning the farmer’s costly disposal problem into a low or negative-cost feedstock. 

The same should apply to food waste and sewage.

When it comes to landfills, it can be assumed that this RNG feedstock would be low costing as RNG processing would help remove methane emissions. Especially considering many larger landfills already have gas-collection systems for methane. 

• Supportive policies which could subsidise production but also add an environmental premium to using RNG

Example: California’s Low-Carbon Fuel Standard (LCFS)

One LCFS credit stands for one tonne of CO2 avoided

Manure derived RNG in California actually creates LCFS credits instead of having to buy them - as manure-RNG captures so much methane that would otherwise vent - meaning companies can use these credits to offset their own compliance deficits or sell them on the open market - whilst still consuming the RNG for their energy needs. The credits are valued at around $60 on the open market.

In effect, California is helping pay producers to deliver RNG through the implementation of LCFS.

Smaller revenue streams:

• Excess CO2 capture from RNG processing can be used in a variety of products (e.g. food)

• Waste capture - secondary byproduct to create fertilisers - the remaining slurry from the anaerobic digester can be separated and sold as fertiliser if from agricultural feedstock

Bottom line: Overall, RNG profitability relies heavily on policies that value its environmental premium, which could include governments subsidising RNG projects, but mainly policies which means companies need to meet a certain carbon threshold, leading to the use of RNG as part of their existing natural gas mix. 

This is both the underlying risk and opportunity on which RNG could grow and become profitable. 

Perhaps if RNG grows because of support, its production costs could naturally come down as competitiveness drives cost-cutting innovation. 

Is sustainability importance being reduced by shift towards prioritising energy security (e.g. Trump and the US), as global trade is in turmoil from tariffs and war-time uncertainty?

RNG is generally still niche and localised so there may be incentive to subsidise it not just for its environmental benefits, but also to create a new source of domestic energy production. Sustainability policies may kill two birds with one stone here, where even if the sustainability policy is virtue signalling in certain cases, it still allows for an increase in domestic energy in an environmentally justified manner.

• Adding RNG into the mix could bring down carbon scores which would simultaneously mean that countries do not necessarily have to cut back on their fossil fuel energy supply - continued demand growth depending - which is important for domestic energy security.

Europe does not seem to be holding back on sustainability targets (FT, Alice Hancock, 2025):

• EU climate advisory has recommended that international carbon credits should not count towards its 2040 goal of 90-95% greenhouse emission cuts compared to 1990 levels. They reason that it would undermine domestic efforts, with concern these credits can be illegitimate especially considering examples of other countries hijacking markets (e.g. Zimbabwe 2 for 1 credit deals).

• This offers local RNG projects a strong role in these targets considering that international carbon credits may be axed. Caveats have been raised about banning international carbon credits in the EU because of rising energy prices, but supporting RNG projects could help alleviate supply/price concerns

Not only is the EU sticking to their emission cuts, but RNG is important for self-sufficiency and reducing dependance on Russian imports. 

RNG also has an important pillar in rural economies, as its production is growingly derived from agricultural sources. Ben Kruger and Warren Feather from Roeslein renewable energy on HC commodities podcast also suggest that novel feedstocks (other than animal waste, food waste, landfill) could be implemented in its growing production - specifically cover crops like prairie grasses. This would directly pay farmers to grow it for it to be converted into RNG, but it's also further incentivised by improving biodiversity on the farm, improving watersheds and soil health. 

• Climate change as a bigger picture concept has also increased volatility in weather and added to the stress of farm labour, so one could assume farmer’s see the issue of waste methane as an important thing to tackle

An idea from Ben Kruger (Roeslein Renewables) about how rural economies drive US politics is also contextually interesting for RNG supportive policies. He mentions how a lot of rural economies are found in the swing states, and therefore is a political opportunity to help develop agricultural economies. So even if policies are reframed from sustainability to energy security or perhaps supporting agricultural economies, their support for RNG could still fundamentally have similar effects.

Bottom line: Even if sustainability as a target for the West is undermined by economic or energy security reasons, policies supporting RNG can still be reframed or repurposed under the light of ‘energy security’, or particularly in the US for support of agricultural economies. Developing RNG is not exclusively useful to sustainability targets, although it must be cautioned this is still its strongest driving factor. 

Conclusion of investment viability / importance of big players making long term deals

RNG’s investment viability is promising but also very dependant on pro-environmental policy making, particularly where reducing carbon emissions is highly valued.

This may currently make more sense in the EU where policies for the future environment are being more strictly followed. However, even if climate change in the US has taken a backseat, RNG supportive policies are still possible through the importance of energy security and agricultural economies.

It is also important for big players, particularly in the energy sector, to strike long term deals with RNG producers to help boost its growth. This would align with the trend of many energy giants future plans to shift towards more sustainable energy to support climate targets. 

Many companies are already doing this to please investors and create a positive image, even before the occurrence of any stricter environmental policies. For example, Shell has already acquired Nature Energy Biogas for $2 billion in 2023, Europe’s largest producer of renewable natural gas. The purchase secures Shell both the molecules and the feedstock relationships it needs to lower the carbon intensity of its gas portfolio.

Bottom line: Investment viability rides strongly on supportive policies (including government subsidies), and the establishment of concrete long term supply deals with bigger players in the energy industry.

Will RNG ever become tradable?

It is currently tradable in the physical sense between producers, energy companies, and businesses that use natural gas; as it can be put straight into the natural gas grid and tracked, but is generally limited to these bigger participants and its future to have a broader market may be limited by the following factors:

• Depends on policy, creating a demand for it despite higher prices

• Depends on supply and if the scale of its production allows it to have enough volume to freely trade (giving it liquidity). There is only so much waste feedstock in the world to process into energy, so it can be considered that RNG could be a chunk of sustainable fuel sources but definitely not a wide-scale solution

Although if prices are brought down to natural gas levels by policies/subsidies and technological improvements, would RNG just integrate into the supply and market of natural gas as a whole? Such a decline in cost seem unlikely to happen soon, and RNG would probably be traded separately anyways because of its environmental benefit. It is the same product but holds a unique value because of its carbon competitiveness and sustainability features. It could provide important optionality in gas trading. 

Bottom line: RNG requires huge growth to become a fully liquid market, including a proper derivatives market, where speculators and individuals could participate. 

Recommendations for further exploration 👀 

• Understand future supply constraints - most obvious ceiling to its growth

• Fundamental weakness in the long-term concept of sustainable as still emits CO2?

• Track the development of future supportive policies - as it is still incredibly dependant on these

• Track the development of long-term, fixed energy deals with RNG production 

• Track the development of innovation and changes reducing production costs
  

Special thanks to Ben Kruger, Warren Feather, and the HC Commodities podcast for prompting this post and first making me aware of RNG