Cryptominers turn to flared natural gas for the power they need

By capturing excess gas that’s otherwise burned off at oil well sites, crypto miners are taking advantage of a cheap power source.

By Shelly BrisbinJuly 6, 2022 12:34 pm, ,

It’s not uncommon to see oil well sites in West Texas flaring gas – a technique used by drillers to burn off the natural gas brought to the surface during the extraction process. Now, some companies want to use that gas as an energy source for cryptocurrency mining.

And the Brazos Valley of Texas could well become a hot spot for cryptominers interested in flaring gas to power their operations. Some fear this could become a slippery slope.

Dan Swinhoe has written about this for Datacenter Dynamics, where he is news editor. Listen to the interview above or read the transcript below.

This transcript has been edited lightly for clarity:

Texas Standard: Tell us a little bit about this operation that you focus on from crypto mining firm, White Rock Management. They’ve just become the latest to utilize flare gas for its mining operations. How does that work?

Dan Swinhoe: There’s a lot of gas that comes out of these pipelines. It normally goes to waste. And a lot of these energy companies have been looking for ways to monetize what’s not making money at the minute. And so, I think it probably depends on the company, but essentially, instead of flaring the gas, you just reroute it through a natural gas power generator and then plug it into a container full of computers and start mining cryptocurrency, basically.

So they say that what they’re doing is a favor to the environment, right?

They do. Obviously they want to get as many green credentials as they can. Whether that’s true or not, it kind of depends on your viewpoint. Is using that gas more efficient than flaring it? Yes. Is CO2 the lesser of two evils compared to methane? Yes. Is it better that gas stays in the ground? Probably also yes. So it’s better than what the industry does currently. But whether or not it’s environmentally friendly is kind of another issue.

These operations demand a lot of energy and typically would take that power off the power grid. And of course, we’ve heard quite a bit about the Texas power grid in recent months. Is this an attempt to save money on energy costs? Is it because these crypto miners consume so much energy?

Crypto mining takes up a huge amount of energy. It’s essentially designed to chew up as much energy as you can plug into the system. And obviously, the cheaper the energy, the more profit. And in the last two years, it’s moved from China via Kazakhstan and those kind of Central Asian countries. And the U.S. is now the hotbed because there are opportunities like this.

You’ve got all this flared gas going to waste. I don’t know what the rates are, but I’m sure the energy companies are giving it to them very cheaply. They’re powering up disused coal power stations because they can buy them cheap and then just power up quickly. If they were just doing it at market rates, none of this would probably be profitable. They’re looking to get energy as cheap as possible wherever they can get it. And right now, a lot of that is based in the U.S. and especially these kind of slightly niche, niche areas.

The use of this flared gas to power bitcoin mining operations seems, I think to people who are not really well-versed in this, like a turning point. I mean, if what you’re talking about is using methods from oil extraction to power bitcoin operations. Does this mark a turning point of any measure in your in your estimation?

One of the things we’ve looked at before is this delaying the transition to renewable energies. This is essentially making oil fields more profitable for longer because they’re getting a slice of the profit. So, is it a turning point? Yeah, perhaps not. Is this slowing down transitions to renewable energy? Almost certainly. Exxon is definitely a company known to be investing quite a lot in these kinds of technologies. And they’re looking at doing similar things on oil rigs at sea. There’s another company doing that. So there’s a lot of money to be made, and therefore people are going to chase it.

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