Insight: Oil drillers and Bitcoin miners bond over natural gas

Enerplus

21/05/2021 12:00

By Laila Kearney
    May 21 (Reuters) - On U.S. oil patches stretching along the
Rockies and Great Plains, trailers hitched to trucks back up
toward well pads to capture natural gas and convert it on the
spot into electricity.
    The trailers - carrying pipes, generators and computers -
are called “mining rigs.” But their owners aren’t there to drill
for oil. They are using stray natural gas unwanted by oil
companies   to power their search for another treasure:
cryptocurrencies like Bitcoin.
    Cryptocurrencies are virtual coins exchanged without
middlemen, such as central banks, to purchase goods and
services. Extracting the currency from cyberspace, however,
requires vast amounts of often-expensive electricity.
Supercomputers must run constantly in a race against other
“miners” to solve complex math problems in order to unlock
digital vaults holding the currency.
    Placed in mobile trailers, these supercomputers run as hot
as 160 degrees Fahrenheit (71 degrees Celsius), and in the cold
of western North Dakota, people stay warm just by sitting near
them, cryptocurrency miners say.
    The miners are increasingly sending these rigs out to oil
fields because it’s one of the cheapest ways to obtain the
energy they need. Oil and natural gas come from the same wells,
but at these sites, drillers are seeking crude oil and have no
pipelines to get the gas to market. That typically forces them
to burn it off in a process called flaring - creating carbon
dioxide emissions - or to vent it into the atmosphere directly
as methane.
    "The sweet spot for us is stranded, low volumes of gas that
don't justify a pipeline,"  said  Steve Degenfelder, land
manager at Wyoming-based producer Kirkwood Oil and Gas LLC,
which has formed an alliance with Bitcoin miners.
    Oil companies face pressure from investors and government
officials to reduce emissions that lead to global warming.
Sometimes they give the gas away for free to cryptocurrency
miners; other times they sell it.
    "Oil and gas companies don't like to flare their gas -
that's money that's burning away," said Degenfelder,  which
works with miners connected to EZ Blockchain, a Chicago-based
energy and technology company, to cut flaring at some of its 600
oil wells across the Rocky Mountains.
    
    HIGHLY UNCERTAIN
    Some environmental advocates and investors say
cryptocurrencies are not a long-term solution to unwanted
natural gas emissions, both because the currency’s future is
highly uncertain and because Bitcoin and other cryptocurrency
companies produce their own emissions.
    The global Bitcoin industry’s overall C02 emissions have
risen to 60 million tons, equal to the exhaust from about 9
million cars. That’s up from 20 million tons from two years ago,
according to a March report by Bank of America analysts.
    Values of Bitcoin, the best known cryptocurrency, plunged
from record highs after billionaire Elon Musk tweeted that his
electric car company Tesla Inc would no longer take the virtual
coins as payment, citing concerns over "rapidly increasing use
of fossil fuels for Bitcoin mining and transactions.” The
currency plunged in value https://www.reuters.com/breakingviews/bitcoin-is-now-worst-all-financial-worlds-2021-05-19
 over two weeks before starting to recover 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 building pipelines to carry
the product out of the oil patch, he said.
    "I think we need much more durable and long-term solutions
that really bring that gas to market and let it be used for
whatever its highest purpose is," he said.
    Proponents say the new oil-cryptocurrency alliances in North
America move mining for virtual coins away from Asia, home to
more than 60% of such operations, which largely rely on
coal-powered electricity. Coal combustion produces roughly twice
as much C02 as natural gas.
    "It helps cut emissions at (an oil) producer level, but also
globally by reducing mining in parts of the world where coal is
likely the power 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.
    Environmental advocates and some investors note, however,
that the harmful emissions don’t disappear  -  they are
transferred from one industry to another.
    "It's not like you're eliminating the emissions, it's that
you're turning them into this other thing, Bitcoin,”  Logan
said.
    
    CATCHING IMAGINATIONS
    The allure of Bitcoin remains for miners despite the
challenges of cryptocurrency markets. Even after the recent
price crash, a single Bitcoin was worth more than $40,000 on
Thursday - almost 90 times its value five years ago, according
to Refinitiv Eikon data.
    Some cryptocurrency mining companies say the mobility of
their natural gas-fueled operations is key, giving them
flexibility to draw natural gas from different sites as it
becomes available.
    "The idea that you could plug in these (computers) and then
take them somewhere else just really caught my imagination,"
said Haley Thomson, a former electricity trader and president of
new cryptocurrency mining company Imperium Digital.
    A variety of business models have been born. In some cases,
cryptocurrency miners pay the oil firms for their natural gas
wholly or in part using the coins they mine. In the case of 
Kirkwood, EZ Blockchain uses stranded natural gas to make
Bitcoin, giving it all to Kirkwood. EZ Blockchain makes money by
supplying equipment and mining services for a fee.
    Industry experts and academics who study energy uses say
there are fewer than 10 large-scale Bitcoin mining companies in
North America that run on stranded natural gas. Many
cryptocurrency miners run smaller operations in the United
States and Canada - some fueled by a single well.
    But some major oil companies have signed on.
    In North Dakota, a top oil-producing state, Norway's Equinor
ASA  EQNR.OL  and Canada's Enerplus Corp  ERF.TO  are among
those that have used such mining to reduce flaring, company
spokespeople confirmed to Reuters.
    Denver-based Crusoe Energy Systems Inc is one of the
continent’s largest Bitcoin mining companies using otherwise
stranded gas. It expects to double its current staff of 55 this
year, said co-founder Cully Cavness.
    Crusoe has about 40 mobile containers in oil shale basins.
It plans on increasing that number to 100 after receiving $128
million in financing last month from investors including
Chicago-based firm Valor Equity Partners LP and Lowercarbon
Capital.
    Crusoe’s partners have included Kraken Oil & Gas Partners
LLC, which produces about 10,000 bpd of oil, making the company
the largest oil producer in Montana.
    "We're going to need a lot more people," Cavness said.
    Meanwhile, government regulations and incentives are in the
offing that could benefit oil and cryptocurrency companies. 
    The U.S. Senate passed a measure in April to reverse former
President Donald Trump's weakening of methane emission
regulations. That could fuel the use of Bitcoin mining to cut
flaring, academic experts said. Lawmakers in Texas and New
Mexico also are looking to crack down on emissions.
    North Dakota and Wyoming this year passed laws that give tax
breaks to oil producers that provide gas to cryptocurrency and
other data miners that would otherwise have been flared.
    "I think it's gonna be a big chunk at what we look at for
the future in North Dakota,”  said state Senator Dale Patten,
who authored North Dakota’s bill.

 (Laila Kearney reported from New York. Editing by David Gaffen
and Julie Marquis)
 ((laila.kearney@thomsonreuters.com))