Bitcoin Fracking Turns Waste Gas Into Gold In Montana

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This article was originally published by Montana Free Press.


SIDNEY – On a sunny oil rig not far from the North Dakota border, the iconic Bakken oilfield infrastructure towers over pink gravel, pump trucks hauling energy-rich hydrocarbons thousands of feet deep under the eastern prairie of Montana.

A multi-story flare and storage containers can be found along the perimeter of the platform, along with a sign announcing the site owner, Houston-based Kraken Oil & Gas. On the other side of the pad, however, a line of metal buildings put together by a Colorado startup represents a decidedly non-traditional arrangement for the oil industry. Buzzing generators hook up electricity to a handful of squat boxes that look like a cross between shipping containers and hot dog stalls. Under the awnings, roaring fans project hot air streams scorching over their sides.

Inside, behind a tangle of power cords and network cables, an entire wall of each container is filled with high-tech IT equipment, powerful servers soaring up to put the produced natural gas as a by-product. from the pad’s oil production to use on a whole different kind of mining: digital cryptocurrency mining.

“Instead of burning it down, we’re trying to bring something to the site so that we can use it and create something beneficial,” said Bruce Larsen, native of Sidney, president of Kraken.

Kraken dug here for oil released from hydraulic fracturing, or hydraulic fracturing, the technology that, along with horizontal drilling, spurred the Bakken oil boom in North Dakota and that part of eastern Montana in the late 1970s. 2000s and early 2010s. Even though the boom has cooled since its peak over the past decade, production has continued on platforms like this, where liquid oil is extracted from the earth. is evacuated to refineries which convert it into gasoline or plastic. On sites without a pipeline connection, producers instead transport the liquid oil in tanks.

Bakken’s oil, however, usually surfaces with a companion that is not necessarily welcome: natural gas that is both more difficult to transport from distant well pads and less profitable to sell. Partly because a component of this gas, methane, is a potent greenhouse gas – about 25 times more effective at trapping the heat of global warming in the atmosphere than carbon dioxide – Companies like Kraken regularly burn unwanted waste gases in well flares, converting as much methane as possible into relatively harmless CO2.

The wastefulness inherent in flaring, along with its climatic implications, has caught the attention of government regulators and environmentalists. North Dakota, for example, had flaring reduction targets in 2014 to encourage the oil industry to invest in the infrastructure it needs to capture the derivative gas and do something useful with it.

More recently, like Bitcoin and other cryptocurrencies emerged as major investment options, the cheap energy that goes up in smoke on well pads has also caught the attention of tech-savvy entrepreneurs.

Unlike traditional currencies like the US dollar, which are regulated by central banks, Bitcoin and its peers are run by digital exchanges that use decentralized databases and cryptography to keep track of ownership. New units of Bitcoin are created by digital mining, essentially performing computer gymnastics to unlock new bitcoins. Bitcoin mining, however, has become an increasingly difficult business as the popularity of digital currency has grown, requiring special hardware and huge amounts of electricity to power it. This energy consumption has, in turn, seen the cryptocurrency industry criticized for its own impact on the climate.

A Bitcoin mine operated in an old mill near Missoula, for example, drew criticism after county officials said it was using as much power as a third of county households. In addition, researchers from the University of Cambridge estimate that Bitcoin currently consumes nearly 94 terawatt hours of electricity per year worldwide, more than the combined consumption of the 108 million people who live in the Philippines.

The server containers at the Kraken well site belong to Denver-based Crusoe Energy Systems, a venture capital-backed startup founded in 2018 that touts itself as a partner for oil companies looking for a cost-effective way to reduce their flaring. In eastern Montana, Crusoe buys otherwise stranded gas from Kraken, directs it to on-site generators, and uses the resulting power to smash Bitcoin without ether.

Cully Cavness, co-founder and chairman of Crusoe, said in an interview that the company also makes its server farms available to people who need other compute-intensive work, such as training intelligence models. artificial or computer animation rendering. He said the company donated computing power to Folding at home, an organization that helps research COVID-19 and other biochemical topics by simulating the atomic interactions at play in protein molecules.

Bitcoin mining, however, is Crusoe’s main effort at the moment. The company, Cavness said, has a dedicated network engineering team that determines how to connect each well server farm to the rest of the world, using satellite internet, microwave transmissions, or in some cases, tailor-made fiber optic lines. which can also provide broadband service to nearby rural customers.

The company isn’t the only ongoing effort to leverage natural gas from wells for Bitcoin mining in the United States, but Caveness said Crusoe is the biggest startup in space. He said the company currently operates around 40 data centers, mostly on the Bakken in Montana and North Dakota, but also operates in Colorado and Wyoming and plans to expand to other oil-producing regions. .

“We are developing it quite quickly today. We hope to be around 100 within a few months, ”he said.

Caveness said he sees the company’s model as an effective response to environmental concerns about cryptocurrency’s energy consumption, both because flares don’t necessarily burn all of the methane in the gas. from the wellbore and because the production of mining energy from gas offsets the consumption of energy that would otherwise have come from elsewhere.

“Compared to continuing to blaze, it’s deeply carbon negative,” he said. “I think more and more, the environmental aspect of this is going to be part of our value proposition.”

Larsen sees it as a win-win situation for producers like Kraken. Most of the company’s revenue, 90%, still comes from the sale of oil, he said, but he appreciates having a way to reduce flaring waste.

Alternatively, he said Kraken could either build a gas pipeline or spend money on equipment to liquefy the gas on-site so that it is easier to transport by truck – although sites like the well platform near Sidney generally do not produce enough gas to make this investment. pencil out.

“As an industry, we try to do our best to minimize the amount of gas we burn,” Larsen said. “I never want to flare gas, we just sometimes face infrastructure constraints, so we have to. “

Since the site near Sidney produces slightly more gas, 1.5 million cubic feet per day, than the 1.2 million cubic feet per day that Crusoe’s four generators have on site can turn into electricity, the well platform still has a burning torch. Larsen said he hopes Crusoe can figure out how to use the rest of the stranded gas as the cryptocurrency firm composes its business model in the years to come.

“Essentially for us, Bitcoin is the newer and more polished solution. And it’s probably the most effective, ”he said.

This story is published by Montana Free Press as part of the Long Streets Project, which explores Montana’s economy with in-depth reporting. This work is supported in part by a grant from the Greater Montana Foundation, which encourages communication about issues, trends and values ​​of importance to Montanians. Discuss the work of MTFP’s Long Streets with senior reporter Eric Dietrich at [email protected]

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