Is a renewable natural gas plant more than a pipe dream?
The experts, you may recall, were confounded by the price of oil. By now, oil should be selling for $110 a barrel, right? Instead, oil has flirted with the $55 a barrel level.
Then there’s the Atlantic Ocean hurricane season. This year there were five hurricanes and four tropical storms, the fewest since 1997. How many of the experts thought that this year’s season would trump last year’s record 28 storms, and wreak havoc along the fragile, rebuilding Gulf Coast? The experts are just as convinced that we are due to drown in our own animal waste. Remember all those stories published and televised earlier this year about vast hog farms in the Carolinas that produced enormous reservoirs of waste, fouling the atmosphere and polluting the groundwater? The thing that unites all these stories is that they are usually framed as inevitabilities: this is horrible and there’s nothing we can do about it.
Yet the price of commodities falls as well as rises, often in response to overdone speculation. The weather remains fickle.
Seemingly intractable problems spawn ingenious solutions.
I turned to the preliminary offering memorandum to the Gulf Coast Industrial Development Authority’s $60 million in environmental facilities revenue bonds with scepticism. The bonds were sold — at a tax-exempt 7 percent, due in 2036, no less — to finance four plants designed to turn cow manure into pipeline grade natural gas.
The bonds were sold in a minimum denomination of $100,000, and only to qualified institutional buyers, or those who can afford to lose their entire investment.
The municipal market has a bleak history with project finance like this.
Over the years, so many investor dreams were dashed. The technology wasn’t proven, management was incompetent, the price of the stuff, on either end, went haywire. More often than not, the projects needed what the transactions couldn’t give them: more money, a little more time.
These bonds will finance Microgy Holdings’ construction of “multi-digester biogas production and gas conditioning facilities” in four locations in Texas: Stephenville, Dublin, and two in Hereford.
There are seven pages of risk factors to these bonds. The company has little operating history; there’s inherent volatility in commodity prices, in this case, of natural gas; the company expects to sell “carbon sequestration credits and other marketable environmental benefits,” yet the market for these is, as the memorandum states, “nascent” and may not develop.
Finally, let’s not forget that it’s difficult to open a mill and get it to work right.
There’s also a lot to recommend these bonds. The company licenses its technology from a couple of Danish companies; the technology is already up and running in Europe. The company itself is putting in $12 million. And Microgy already operates three smaller, similar facilities in Wisconsin, which are used to provide power to their host dairies.
The real reason to like these bonds is that they seem to be for something that’s needed. As the feasibility study by SJH & Co., of Boston, points out, the US has moved beyond the point where the manure produced by all of its cattle and swine can be used simply as fertiliser.
Perhaps the proliferation of “confined animal feeding operations” with their high concentrations of animals makes these projects more than just wishful thinking. They make logical sense; perhaps now they will make financial sense as well.
