Crypto miners see ‘stuck’ natural gas as a new energy source

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Today, when drillers end up extracting crude from a fractured oil well, they get a byproduct: natural gas.

Steve Barbour, a Canadian oil and gas engineer, has a handy analogy.

“If you open a can of Coke, you have a bunch of foam. A bunch of gas comes out. Same thing in an oil well, there’s a lot of gas in solution. When you start producing that oil, the gas erupts sort of,” he said.

If this well is near a pipeline, this associated gas can be sold to a power plant or used to heat homes. But some wells are far from pipelines, and it doesn’t make economic sense to connect them. This gas is called blocked.

“If they can’t use it and they can’t sell it, then they burn it, usually,” Barbour said. “Sometimes they vent it.”

Burning it – often called flaring – is bad for the environment. It’s all carbon dioxide without any of the benefits. Rejecting it directly into the atmosphere is worse because methane traps more heat than carbon dioxide, thus accelerating global warming.

For years Barbour’s customers have asked him what they can do with the stranded gas from their wells.

In 2016, he had an idea. He discovered bitcoin mining, which runs computer servers 24/7 – tens of thousands of them around the world suck as much electricity as all of Poland.

He figured the stranded gas might provide some of that energy, but he also figured he wasn’t the first to think of it.

“I couldn’t really find anyone publicly,” he said. “I’ve scoured all the forums and couldn’t find anyone talking about it. So I just built one – well, it took a while – but I designed and built the prototype and deployed it, and then started my business based on it.

What he built was a gasoline-powered generator connected to a shipping container full of crypto-mining computers. It was in 2019.

To do business, he posted a video of his prototype on Twitter.

The video caught the attention of Matt Lohstroh. He was studying finance at Texas A&M University, but bought his first bitcoin in 2016 and said he spent all his time trying to figure out how to make bitcoin mining his career.

“My best friend, he had a very well-known reputation as an oil and gas family,” Lohstroh said. “So I called him. I said, ‘Can you do that?’ He said, ‘Yes, we have an oil well. Do you want to try?’ And we just went from there.

His friend’s family owns oil wells on about 100 acres in Buna, Texas, about a two-hour drive from Houston. They bought one of Barbour’s mobile mining units and installed it on one of the shafts.

Lohstroh said they tested the effectiveness of the unit, decided to change some things and started making gas-powered mining rigs themselves. They call their company Giga Energy.

Lohstroh explained how a “Giga Box” works that sits next to an oil well just south of Texarkana, Texas. About $150,000 gets you a wired container; the generator and mining devices are extra. The box can hold over 1.5 million worth of computers.

“You’ve got a natural gas well, it’s producing oil, it’s going to flow down the top pipe, and then you have natural gas flowing down the bottom pipe that goes 8,000 feet into the Earth,” Lohstroh said, making around the well. “Thus, the natural gas flows like a miniature pipeline. And then we take that to the generator and literally screw it into the generator, the generator inlet. So about 87,000 cubic feet of natural gas are burned per day. This crankshaft turns a generator, this generator produces electricity.

According to Lohstroh, this unit produces enough electricity to power about 720 homes in the area.

In the world of bitcoin mining, it’s on a very small scale. A much larger mine in Rockdale, Texas has the capacity to use enough energy to power 333,000 homes.

Lohstroh said scaling is his company’s next mission. It has signed agreements with more than 20 junior oil and gas companies.

It doesn’t expect to sell any of its rigs to a major oil company anytime soon as large publicly traded companies are traditionally very cautious. But he said he felt more and more big energy companies were interested in crypto.

“And the way to figure that out is to say, ‘Hey, just sell me your gas, sign a gas purchase agreement. You take no capital risk and you get all the benefits of selling your gas,” he said.

Oil giant ConocoPhillips has confirmed it is running a pilot program in the Bakken Shale in North Dakota. Instead of burning stranded gas, it sells it as fuel to third-party crypto miners. ExxonMobil would do something similar.

Sounds like a win-win, right?

“We absolutely should capture waste gases for energy,” said Michael Webber, professor of energy resources at the University of Texas at Austin. “So the idea of ​​taking waste and turning it into electricity is a great idea. Turning that electricity into something value-added is also a great idea. Is crypto mining the best use of those electrons? I mean, I don’t know.

Those who believe that bitcoin mining will make them rich argue that it is actually the best use of those electrons. On the face of it, finding a use for otherwise wasted natural gas is economically efficient, at least in the short term. But some are not convinced.

“These kinds of things are effective subsidies for continued oil and gas production,” said Paasha Mahdavi, an assistant professor of political science at the University of California, Santa Barbara, who studies climate change mitigation. methane. “They’re essentially providing a new source of fossil fuel demand.”

“It’s like having a broken gas line at home. Instead of solving this problem, you just bought a new gas dryer and run it forever without any clothes in it,” he said. ” This is not a solution. That is effectively what you have here with crypto mining and any type of stranded gas or gas flared sites.

Mahdavi does not blame the contractors for finding solutions to the problem of stranded natural gas.

But instead of monetizing that flared gas, he thinks it would be much better to incentivize oil and gas companies to fix leaky pipelines and address the bigger issue of greenhouse gas emissions.

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