Partnerships between oil producers and crypto miners are becoming more commonplace across the U.S. as bitcoin firms fight over flared gas. While bitcoin and other digital currency producers have struck up several deals with local American oil firms to repurpose their waste gas for mining, it’s only recently that oil majors have started to pay attention. With huge carbon-cutting potential through mutually beneficial partnerships, this could be a win-win for crypto and Big Oil.
Over the past couple of years, interest in repurposing waste gas for use in crypto mining has increased significantly. Oil companies are feeling mounting pressure from governments, international agencies, and environmental activists to reduce the quantity of greenhouse gas emissions they’re releasing into the atmosphere from their operations. Until now, potential solutions for carbon-cutting have been costly. Oil and gas firms have invested billions into carbon capture and storage (CCS) technologies as well as seeking out less carbon-intensive oil opportunities. But then crypto companies came along and offered a possible alternative.
Gas flaring is a byproduct of fracked shale output that is thought to produce about 1 percent of the world's carbon emissions. This gas is flared because the is little profit in reusing it. Meanwhile, the energy needed to mine cryptocurrency is extremely high. In 2020, bitcoin required more energy than the whole of Switzerland for mining. So, when crypto companies reached out to oil firms to establish mines on oil sites and repurpose the gas, several firms jumped at the chance.
An increase in the number of oil-crypto partnerships has been seen in both the U.S. and Russia – the world’s biggest oil flarer. Even politicians in the U.S. are getting on board, with Texas Senator Ted Cruz encouraging partnerships as a means of securing energy infrastructure against harsh weather conditions that can lead to lethal energy cuts. Setting up these types of sites would allow energy to be shifted back to the grid as needed, particularly useful in times of natural disaster.
Now it appears that oil majors want a piece of the action as Conoco Phillips has started selling waste gas to bitcoin miners in North Dakota. It announced this month that it is currently running a pilot project, selling gas destined for burning to a third-party bitcoin processor to repurpose. Similar projects have seen a reduction of around 63% in CO2 emissions compared to flaring.
In 2020, Conoco Phillips announced its net-zero operational greenhouse gas emissions target for 2050, setting ambitious objectives for 2030. As part of this aim, it endorsed the World Bank Zero Routine Flaring by 2030 initiative. Through its Lower 48 methane reduction project Conoco has already implemented a combustion control strategy to make its flaring more efficient. And introducing new partnerships with crypto miners could take this one step further, helping the company to significantly reduce its carbon emissions from waste gas.
And we can already see those reaping the rewards from these innovative partnerships. In 2019, when oil-crypto partnerships were practically non-existent, two students in Texas established Giga Energy Solutions. They put a shipping container with thousands of bitcoin miners on an oil production site, diverting natural gas into generators to convert it into electricity, which in turn powers the miners.
Company co-founder Brent Whitehead explains, “Growing up, I always saw flares, just being in the oil and gas industry. I knew how wasteful it was… It’s a new way to not only lower emissions but to monetize gas.”
Giga is now expanding rapidly, having signed deals with over 20 oil and gas firms and expecting more to follow. In fact, in 2020 Giga achieved revenues of $4 million, with expected earnings of around $20 million by the end of 2022.
Similarly, 27-year-old Hunter Lowe set up Crusoe Energy with the same intention, spotting a gap in the market and seeing a way to reduce carbon emissions at the same time. Lowe set up a bitcoin mine at an oil site in North Dakota, which quickly profited from last year’s crypto boom. Encouraged by the reduction in carbon emissions, companies such as Valor Equity Partners, Bain Capital, and the Agnelli family's Exor invested $128 million in Crusoe last year, allowing it to expand its flare capture technology and increase the size from 40 to 100 units.
Just three years ago, many crypto innovators were laughed out of the room for suggesting to oil and gas firms that they would help them cut their carbon emissions and save money by repurposing waste gas for crypto mining. Digital currencies were simply too volatile to take this suggestion further. Fast-forward three years, several projects across the U.S. and other countries are already up and running, sending carbon emissions down and crypto profits up. Having seen the success of these projects, oil major Conoco Phillips is now running a pilot project that could lead the way for carbon capture through mutually beneficial partnerships.
By Felicity Bradstock for Oilprice.com
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