Oil drillers and bitcoin miners tie in with natural gas

On US oil plots stretching along the Rockies and Great Plains, trailers hitched to trucks climbed up to well pads to capture natural gas and convert it on-site into electricity.

The trailers – carrying pipes, generators and computers – are called “mining platforms”. But their owners are not there to drill for oil. They are using parasitic natural gas unwanted by oil companies to fuel their search for another treasure: cryptocurrencies like bitcoin.

Cryptocurrencies are virtual coins traded without intermediaries, such as central banks, to purchase goods and services. However, mining cyberspace currency requires large amounts of often expensive electricity. Supercomputers must constantly race against other “miners” to solve complex mathematical problems in order to unlock digital chests containing currency.

Placed in mobile trailers, these supercomputers run at up to 160 degrees Fahrenheit (71 degrees Celsius), and in the cold of western North Dakota, people stay warm just by sitting near them, say cryptocurrency miners.

Miners are increasingly sending these rigs to the oilfields because it is one of the cheapest ways to get the energy they need. Oil and natural gas come from the same wells, but at these sites the drillers are looking for crude oil and do not have a pipeline to get the gas to market. This usually requires them to burn it in a process called flaring – creating emissions of carbon dioxide – or releasing it into the atmosphere directly as methane.

“The sweet spot for us is the low volumes of stranded gas that doesn’t justify a pipeline,” said Steve Degenfelder, land manager for Wyoming-based producer Kirkwood Oil and Gas LLC, which has formed an alliance with miners. of bitcoins.

Oil companies face pressure from investors and government officials to reduce emissions that lead to global warming. Sometimes they give the gas for free to cryptocurrency miners; other times they sell it.

“Oil and gas companies don’t like to burn their gas – it’s money that burns,” said Degenfelder, who works with connected miners at EZ Blockchain, a Chicago-based energy and technology company. , to reduce the flaring of some of its 600 oil wells across the Rocky Mountains.

Very uncertain

Some conservationists and investors argue that cryptocurrencies are not a long-term solution to unwanted emissions of natural gas, both because the future of the currency is very uncertain and because bitcoin and d other cryptocurrency companies produce their own issues.

Overall carbon dioxide emissions from the global bitcoin industry have increased to 60 million tonnes, equivalent to the exhaust fumes of about 9 million cars. That’s 20 million tonnes from two years ago, according to a report released in March by analysts at Bank of America.

The values ​​of bitcoin, the most well-known cryptocurrency, fell to record highs after billionaire Elon Musk tweeted that his electric car company Tesla Inc. would no longer take virtual coins as payment, citing concerns about “ increasing use of fossil fuels for bitcoin mining and transactions. ”The currency plunged in value more than two weeks before starting to recover on Thursday.

Andrew Logan, senior director of oil and gas at Ceres, the Boston-based clean energy investor group, said there are better ways to use stranded gas, including to power hospitals and schools. . However, that would require the construction of pipelines to transport the product out of the oilfield, he said.

“I think we need much more sustainable, long-term solutions that actually bring this gas to market and allow it to be used for whatever purpose,” he said.

Supporters say the new oil-cryptocurrency alliances in North America are moving virtual coin mining out of Asia, which is home to more than 60% of those operations, which rely heavily on coal-fired electricity. Burning coal produces about twice as much carbon dioxide as natural gas.

“This helps reduce emissions at the producer level (of oil), but also globally by reducing mining in areas of the world where coal is likely the energy source,” said Mark Le. Dain, vice president of strategy at oil and gas software company Validere Technologies Inc., which tracks energy molecules and their use.

Conservationists and some investors, however, note that harmful emissions don’t go away – they are transferred from one industry to another.

“It’s not like you eliminate emissions, it’s like you turn them into this other thing, bitcoin,” Logan said.

Catch the imagination

The appeal of bitcoin remains for miners despite the challenges of the cryptocurrency markets. Even after the recent drop in prices, a single Bitcoin was worth more than $ 40,000 on Thursday – nearly 90 times its value five years ago, according to data from Refinitiv Eikon.

Some cryptocurrency mining companies say mobility of their natural gas-powered operations is essential, giving them the flexibility to pull natural gas from different locations as soon as it becomes available.

“The idea that you could plug in these (computers) and then take them somewhere else really caught my imagination,” said Haley Thomson, former electricity trader and president of new cryptocurrency mining company Imperium Digital.

A variety of business models were born. In some cases, cryptocurrency miners pay oil companies for their natural gas in whole or in part using the coins they mine. In Kirkwood’s case, EZ Blockchain is using stranded natural gas to make bitcoin, which gives Kirkwood everything. EZ Blockchain makes money by providing mining equipment and services for a fee.

Industry experts and academics studying the uses of energy say there are less than 10 large-scale bitcoin mining companies in North America that run on stranded natural gas. Many cryptocurrency miners operate smaller operations in the United States and Canada – some powered by a single well.

But some big oil companies have signed on.

In North Dakota, one of the main oil producing states, the Norwegian Equinor ASA and the Canadian Enerplus Corp. are among those who have used this type of exploitation to reduce flaring, company spokespersons confirmed.

Denver-based Crusoe Energy Systems Inc. is one of the continent’s largest Bitcoin mining companies using otherwise stranded gas. He plans to double his current workforce of 55 this year, said co-founder Cully Cavness.

Crusoe has approximately 40 mobile containers in oil shale ponds. He plans to increase that number to 100 after receiving $ 128 million in funding last month from investors including Chicago-based company Valor Equity Partners LP and Lowercarbon Capital.

Crusoe’s partners include Kraken Oil & Gas Partners LLC, which produces approximately 10,000 barrels per day of oil, making the company Montana’s largest oil producer.

“We’re going to need a lot more people,” Cavness said.

Meanwhile, government regulations and incentives are in sight that could benefit oil and cryptocurrency companies.

The US Senate passed a measure in April to reverse former President Donald Trump’s weakening of methane emissions regulations. This could fuel the use of bitcoin mining to reduce flaring, academic experts said. Lawmakers in Texas and New Mexico are also looking to tackle emissions.

North Dakota and Wyoming passed laws this year that give tax breaks to oil producers who supply gas to cryptocurrency and other data miners who would otherwise have been burned.

“I think that will be a big part of what we envision for the future in North Dakota,” said State Senator Dale Patten, who drafted the North Dakota bill.

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