Bitcoin fracking turns waste gas to gold in Montana

This article was originally published by Montana Free Press.

SIDNEY – In a sun-drenched oil field not far from the North Dakota border, the iconic infrastructure of the Bakken Oil Field towers over pink gravel, and pumpjacks pull energetic hydrocarbons from thousands of meters below the eastern Montana prairie.

A stack of torches and multi-level storage containers stand along the perimeter of the pad, along with a sign announcing the site’s owner, Houston-based Kraken Oil & Gas. On the other side of the pad, however, a row of metal buildings erected by a Colorado startup makes a decidedly unconventional arrangement for the oil industry. Humming generators wire power to a handful of squat boxes that look like a mix of shipping containers and hot tubs. Dog stands look like. Under the awnings, whirring fans blow torrents of scorching hot air from their sides.

Inside, behind a tangle of power and network cables, an entire wall of each container is packed with high-tech computer equipment, powerful servers chugging away to use the natural gas produced as a by-product of the pad’s oil production for an entirely different kind of use Extraction: mining digital cryptocurrency.

“Instead of burning it up, we’re trying to put something on the website so we can use it and create something useful,” said Bruce Larsen, a native of Sydney, president of Kraken.

Kraken has been digging for the oil released by hydraulic fracturing or fracking here, the technology that, along with horizontal drilling, fueled the Bakken oil boom in North Dakota and this section of eastern Montana in the late 2000s and early 2010s. Even though the boom has cooled from its peak over the past decade, production has continued on pads like this one, where liquid oil pulled from the ground is directed towards refineries that convert it to gasoline or plastic. Instead, at locations without a pipeline connection, the manufacturers transport liquid oil in tanks.

Bakken oil, however, often comes to the surface with an unwelcome companion: natural gas, which is both harder to transport from remote wells and less profitable to sell. In part because one component of this gas, methane, is a powerful greenhouse gas – an estimated 25 times as effective as carbon dioxide at capturing planet-warming heat in the atmosphere – Companies like Kraken routinely burn unwanted exhaust gas in torches from boreholes, converting as much methane as possible into the comparatively harmless CO2.

The inherent waste of flaring, as well as its impact on the climate, has drawn the attention of government agencies and environmentalists. North Dakota, for example set far-reaching reduction targets back in 2014 in an effort to encourage the oil industry to invest in the infrastructure it needs to capture by-product gas and do something useful with it.

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

Unlike traditional currencies like the American dollar, which are regulated by central banks, Bitcoin and its competitors are managed by digital exchanges that use decentralized databases and cryptography to keep track of ownership. New bitcoin units are created through digital mining, essentially doing computer gymnastics to unlock new bitcoins. However, with the increasing popularity of digital currency, bitcoin mining has become an increasingly difficult undertaking and requires specialized hardware and enormous amounts of electricity to power it. This power consumption, in turn, has seen the cryptocurrency industry criticized for its own impact on the climate.

For example, a bitcoin mine that operates in an old mill building near Missoula, was criticized after district officials said it uses as much electricity as a third of households in the district. They also have researchers from the University of Cambridge It is estimated that Bitcoin currently consumes almost 94 terawatt hours of electricity per year worldwide, more than the total consumption of the 108 million people living in the Philippines.

The server containers on the Kraken-Brunnen site are owned by Crusoe Energy Systems of Denver Den, a venture-backed startup founded in 2018 that markets itself as a partner to oil companies looking for an economic way to reduce their flaring. In eastern Montana, Crusoe buys otherwise stranded gas from octopuses, feeds it into the on-site generators, and uses the resulting electricity to crack Bitcoin out of the air.

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

However, Bitcoin mining is Crusoe’s main pursuit right now. The company, Cavness said, has a dedicated network engineering team that works out how each Well-Pad server farm can be connected to the rest of the world via satellite internet, microwave transmission, or in some cases, bespoke fiber optic lines which can also bring broadband services to nearby rural customers.

The Company is not the only ongoing attempt to exploit downhole natural gas for bitcoin mining in the US, but Caveness said Crusoe was the biggest startup in the industry. He said the company currently has about 40 data centers operating, mostly at Bakken in Montana and North Dakota, but also in Colorado and Wyoming, and plans to expand into other oil producing areas.

“We’re growing pretty fast today. We aim to be around 100 within months, ”he said.

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

“Compared to another flare-up, this is deeply carbon negative,” he said. “I think more and more that the environmental aspects will be part of our value proposition.”

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

Alternatively, he said, Kraken could either build a gas pipeline or spend money on equipment to liquefy the gas on site so it could be more easily trucked – though sites like Well Pad near Sydney generally don’t have enough gas produce pencil out to make that investment.

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

Given the Sidney site is producing slightly more gas, 1.5 million cubic feet per day, than the 1.2 million cubic feet per day that the four generators Crusoe has on-site can convert into electricity , the borehole is still burning. Larsen said he was confident that Crusoe could use the rest of the stranded gas if the cryptocurrency company rolls out its business model in the years to come.

“For us, Bitcoin is essentially the most novel and cleanest solution. And it’s probably the most efficient, ”he said.

This story is published by Montana Free Press as part of the Long Streets Project, which studies Montana’s economy with in-depth coverage. This work is supported in part by a grant from the Greater Montana Foundation, which promotes communication about topics, trends and values ​​that are important to Montaner. Discuss MTFP’s Long Streets work with lead reporter Eric Dietrich briefing

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