How crypto mining has become the oil industry’s new hope:
A wave of tech startups is eyeing the oil and gas sector to help fuel the cryptocurrency boom. Environmental experts warn that plans to reuse waste gas are not a solution, but the equivalent of putting a Band-Aid over a deep wound.
In January 2019, Chase Lochmiller and Cully Cavness, former Denver high school buddies who had recently reconnected, drove to the snowy plains of Wyoming to bring a piece of tech culture to America’s heartland. Shivering in minus 29°C temperatures, they set up a prototype of their brainchild: a machine that harnesses “waste gas” from oil rigs to power cryptocurrency mining.
Cryptocurrencies like bitcoin – the most popular decentralized digital currency – emit an exorbitant carbon footprint (in one year, bitcoin mining alone consumes around half the electricity of the entire UK in the same period). So, to tap into a cheap energy source for their bitcoin mining or crypto mining operations, Lochmiller and Cavness partnered with oil companies to reuse a by-product, primarily methane, that is typically vented or burned. in torches.
“We flipped the switch and saw all the bitcoin mining servers light up green, and we could see the flame coming out of the torch shrink a little bit,” says Lochmiller, a self-described “city boy” who had never laid before. standing in an oil field.
“It was kind of a Frankenstein moment: ‘My God, he’s alive!”
Its creation is part of a wave of tech startups eyeing the oil and gas sector to help fuel the cryptocurrency boom. Lochmiller and Cavness, who created a bitcoin mining company called Crusoe Energy, see their proposal as bridging two mutually “solvable” problems: wasteful gas contributing to the climate crisis and the need for cheaper energy around the world. as the popularity of cryptocurrencies is on the rise.
Environmental experts, however, warn that this is a “false solution” as long as oil and gas production continues to be allowed. The world’s foremost authority on climate science concludes that only a drastic reduction in greenhouse gas emissions will help avert a climate disaster. The mere search for alternative uses for “waste gas” does not address the urgent need to curb the consumption of fossil fuels. If anything, the researchers warn, oil companies could be incentivized to drill even more.
“At the end of the day, they’re still burning natural gas,” says Arvind Ravikumar, a methane researcher at the University of Texas at Austin, who calls “flare mitigation” and companies proposing similar technologies a “scam.”
However, Lochmiller and Cavness say their work helps the industry produce oil as cleanly as possible, buying time or “expanding the runway” for the energy transition.
His company has attracted high-profile investors including Bain and Winklevoss Capital, raising $125 million in its second round of funding in April. They plan to install 100 bitcoin mining data centers by early 2022, adding to the 65 existing units.
“Digital Flare Mitigation”
Crusoe has trademarked his solution as “digital flare mitigation.” The company installs fleets of data centers, which hum in structures similar to shipping containers located next to oil platforms. Oil producers are paid for residual gas that they would not otherwise use since it is cheaper to burn it than to pay for transportation to market it. In exchange, Crusoe can use the by-product to power energy-intensive computing operations on-site.
Data centers consume enormous amounts of energy because there is no centralized “bank” that stores cryptocurrencies. Instead, new coins are created by solving complex equations that require a lot of computational power to authenticate. The currency is then recorded on a decentralized ledger, known as a ‘blockchain’, which is also resource-intensive to maintain.
This new technology comes amid the “great mining migration” taking place in the United States after China banned cryptocurrency mining in September. And due to the renewed global interest in reducing methane emissions – a very powerful greenhouse gas and the main “waste gas” in the combustion associated with oil extraction – this procedure is in vogue.
Oil-friendly regulators, elected officials, industry groups, and financial services giants have taken notice. Jim Wright, director of the Texas Railroad Commission, the state agency charged with regulating oil and gas, tells The Guardian that modular mitigation facilities like Crusoe’s are “very attractive.” Texas State Senator Ted Cruz is also enthusiastic about this proposal.
For their part, North Dakota lawmakers, both Democrats, and Republicans, passed legislation this year that allows oil producers to get a tax credit if they use flare mitigation at their refineries. Crusoe, who is based in Williston, North Dakota – in the heart of the Bakken shale formation, the largest oil field in the US – worked closely with lawmakers to get the law passed.
According to Paasha Mahdavi, a professor of political science at the University of California, Santa Barbara, and co-author of a 2020 paper on methane mitigation measures, new technologies that stop gas flaring appear to reduce emissions.
But in practice, he says, projects designed to capture gas that would otherwise be flared or vented have led to an overall increase in gas production. After all, they create a new source of demand. “It’s as if we had a leaking gas line and instead of fixing the problem, we plugged a Humvee off-road vehicle next to the leak and left the engine running forever with the air conditioning on full blast,” says Mahdavi.
Cavness, the CEO of Crusoe Energy, known as “Electron Cowboy” on Twitter, grew up imagining joining the family business. He would land an internship at Shell and follow in his father’s and grandfather’s footsteps to build a career in the oil and gas industry.
But Cavness ended up at Middlebury College, a prestigious liberal arts college in Vermont reputed to be the alma mater of the founders of the global campaign against climate change, 350.org, and home to the university’s fossil fuel divestment movement. “The weather was all the talk,” says Cavness, noting that he felt pressure to downplay his origins.
Having plunged into the bottomless pit of climate change at Middlebury and spent the year after graduation studying the “morality of energy,” Cavness’s work pricked at his conscience. It kept him awake at night thinking about the immeasurable amount of gas that the industry was wasting. According to the International Energy Agency (IEA), in 2020, 142,000 million cubic meters of gas were burned in torches, the energy equivalent of providing electricity to 49 million homes.
When Cavness met up with Lochmiller in 2018 during an 18-hour hike in the Rockies, they hatched a plan. Lochmiller, an MIT graduate based in San Francisco, had recently left his position as a partner in a cryptocurrency investment firm. For his part, Cavness was with another company that invested in oil and gas. Together, they would combine their worlds: bitcoin and oil.
Not surprisingly, the option of burning gas to mine bitcoin is tremendously attractive to the industry. Crusoe’s data centers are set up at no cost to producers, who earn money from the gas that they otherwise wouldn’t get.
“Essentially, it’s a free offer to the oil company,” Cavness explained earlier this year at the Developing Unconventional Gas virtual conference, hosted by Hart Energy for the Bakken and Rocky regions.
Cavness and Lochmiller say they are at the forefront of the latest climate research. But critics warn that his company fits into the techno-optimistic ecosystem of Silicon Valley, where the search for innovative solutions can blind even the most knowledgeable entrepreneurs on climate change.
Climate change experts point out that Crusoe’s attitude and the “solution” they propose show a selective understanding of science. Even the most conservative forecasts say that oil and gas exploration must stop immediately to avoid the worst impacts of the climate crisis, including unnecessary loss of human life. But despite Crusoe making the weather his trademark, Lochmiller confirms that the company supports ongoing exploration and drilling.
As Cavness sees it, fossil fuels will continue to exist, even after his daughter, now a child, ages or reaches the end of her life. If the oil industry will be “necessary to sustain life on the planet” anyway, Cavness wonders, why not drill as cleanly as possible?
Although Crusoe officials say its digital torch mitigation technology is buying time for new clean energy sources, some fear its strategy is tantamount to putting a Band-Aid over a deep wound. Of the environmental experts who responded to requests for information, including senior methane researchers, political scientists, and climate analysts, nine out of ten say that oil and gas exploration and new drilling – including if they are equipped with methane mitigation technologies – are not in line with a future in which curbing global warming follows international climate commitments.
Of this group, the only dissenting voice, an academic and co-founder of a greenhouse gas monitoring company, says continued exploration and drilling can “probably” be done cleanly.
Climate experts are more divided on the extent to which cryptocurrency operations should be allowed to consume renewable energy. Three of the ten climate experts The Guardian spoke to were intrigued by one element of Crusoe’s model.
As in the residual gas operations, the company has a set of data centers programmed to work with wind farms, which in turn are designed to take advantage of the available energy when the number of gigawatts generated exceeds demand. According to Crusoe, the company’s ability to pay for that energy will allow renewable energy promoters to finance new fleets.
But not everyone is optimistic. Heather Price, an atmospheric chemist, and professor at North Seattle College worry that flaring mitigation technology is little more than a ‘greenwashing’ tactic aimed at putting a positive face on fossil fuels.
“I have no faith that this use of torches for cryptocurrencies is going to be a temporary situation,” he says. “The fossil fuel industry and cryptocurrency companies should not be praised for this move.”