Methane Madness II: When bitcoin and flaring meet

Greenwashing? Or a win-win solution?

Editor’s note: We initially wanted to save this one for later in the Methane Madness series, but last week Elon Musk, who helped fuel the Bitcoin craze, announced that Tesla Motors would no longer accept bitcoin due to its environmental impact. We’ve got to keep up with the news, right?

Thousands of oil and gas wells and their associated equipment smatter the landscape of the Uinta Basin in east-central Utah. But one of these dispersed hydrocarbon factories looks just a bit different. Among the usual tangle of pipes, wellheads, pumps, and valves sits a large mobile generator and a modified shipping container with bright blue siding, a small satellite dish on top, and the words “EZ blockchain” printed on the sides. 

Inside the container is a mine, where a herd of equipment gouges into cyberspace in search of digital gold. It’s not a real mine, of course. It is a bank of computer processors that are “mining” cryptocurrency, such as Bitcoin, Ethereum, or Binance Coin, an extremely energy-intensive process. And this particular crypto-mine is getting its energy from the generator, which is designed to run off of wellhead gas, or the methane and other hydrocarbons that would otherwise be flared or burned-off. 

This collaboration between a tech startup and an oil company appears to be an innovative solution to two environmental problems—flaring at oil and gas wells and cryptocurrency’s profligate power consumption—with one nifty contraption. But is it really? Or is this actually a double-sided greenwash, a way to obscure the problems of both fossil fuel extraction and cryptocurrency while also avoiding accountability? 

METHANE, FLARING, and VENTING

A couple of decades ago, the natural gas—a.k.a. methane—extraction industry was exploding (figuratively and, sometimes, literally) across the Interior West. Thanks to burgeoning demand for cooking, heating, and power production, and because importing gas is much more difficult than shipping oil, natural gas prices were double or triple what they are today. As a result, most of the drill rigs were targeting natural gas—both as coalbed methane and from conventional reservoirs—not oil. 

Since methane was the cash crop, the producers wanted to capture as much of it as possible, so they typically kept venting and flaring—the release or burning off of excess gases from the well—to a minimum, usually halting the practice altogether within a few weeks of completing a well.

Then, in the early 2000s, the drilling method now known as fracking came onto the scene, flipping everything on its head. This combination of horizontal drilling and multi-stage hydraulic fracturing enabled drillers to get at oil and gas tightly bound in shale formations. In the beginning, frackers were going after pricey natural gas, but the frenzy soon yielded so much methane that the market was glutted and prices crashed dramatically. 

Unlike during the oil bust of the mid-1980s, however, the rigs weren’t scrapped, they were just moved and refocused—on oil. Thanks to growing global demand, the price of oil was shooting skyward, and fracking had opened up huge new deposits of crude. A gas bust became an oil boom. 

Oil is almost always accompanied underground by “associated gases,” including natural gas—i.e. methane—which also flows out of an oil well. Since the natural gas price is so low, there’s no money to be made by capturing and selling the methane, nor is there an incentive to invest in the infrastructure needed to gather and transport the gas. 

Natural gas thus becomes a waste product that many producers dispose into the atmosphere, either through venting or flaring. Venting releases the potent greenhouse gas (see Methane Madness Part I for details) directly into the air, to the detriment of climate and air quality. Flaring converts most of the methane into carbon dioxide, which is an improvement over methane, but still warms the climate. But flaring is rarely efficient, meaning some methane still escapes un-combusted, and flaring also emits hazardous pollutants such as volatile organic compounds, polycyclic aromatic hydrocarbons, carbon monoxide, nitrogen oxides, and black carbon. Both venting and flaring equate to throwing away a non-renewable commodity that—when done on public lands—belongs to the American taxpayer and could otherwise be generating millions of dollars in tax revenues and royalties for governments and landowners. 

The oil and gas industry, in other words, has a flaring problem.

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CRYPTOCURRENCY HAS A POWER PROBLEM

It seems these days as if nearly everyone I talk to owns—if that’s the right word—at least some cryptocurrency, a digital form of decentralized currency based on a blockchain system. Some are true bitcoin aficionados, and are almost cultish in their devotion (identified in the wild by their laser-eyed Twitter avatars). But most cryptocurrency holders are just looking for a good investment, like gold or stocks. Some play the market, buying when the price is low, cashing out when it’s high; others are in for the long-game, investing a few thousand bucks now in hopes of retiring on the proceeds in a decade or three. 

Investing in gold and many stocks and bonds have environmental consequences. Trading in Bitcoin and other cryptocurrency (often referred to generically as bitcoin) is anything but immune. Bitcoin mining, which consists of creating new blocks for the currency’s blockchain in return for bitcoin, gobbles up massive amounts of electricity—by design. 

Cryptocurrency mining is often characterized as an act of solving a set of complex equations, which evokes images of a Red Bull-guzzling genius hunched over a calculator or a really smart computer doing its thing. But really it’s less about calculation than it is about a process of trial and error, or making guesses, in hopes of landing on a random, 64-digit number. The best way to determine that number before anyone else does is to throw as many guesses at it in a short amount of time as is possible, a process that requires enormous amounts of computing power. The greater the computing power, the more electricity consumed. Or, to put it another way, the more power one uses, the more likely they are to hit the jackpot. As the value of each cryptocurrency increases, so does the number of miners. More miners means more computing power means more electricity consumed. 

The numbers are staggering. As of May 10, the Cambridge Center for Alternative Finance estimated that the mining for Bitcoin, alone, was eating up electricity at an annual rate of about 150 terawatt hours—about 10 percent more than the entire nation of Sweden.

The environmental impact of cryptocurrency’s juice-guzzling ways depends largely on where the mining takes place and on the energy mix for that location’s electricity grid. A mining operation in California will have a smaller carbon footprint than one in Colorado, for example, because California’s grid—with virtually zero coal-fueled power—is a heck of a lot cleaner than Colorado’s, which is dominated by coal and natural gas generation. 

Cheap, however, is more important than clean for most cryptocurrency miners, so they tend to head to places where power is more affordable, such as Iran, China, or along the Columbia River in the Northwest with its abundance of hydropower. One crypto-mining firm partnered with the owner of a small coal-fired power plant in Montana to use its power, and there is a lot of talk about setting up crypto-mines near solar plants where they could tap into excess mid-day power. The State of Wyoming is actively courting crypto-miners to take advantage of their abundance of coal-fired power, thereby potentially keeping the state’s struggling coal industry afloat. 

And then some are making their ways to the oilfields of New Mexico, Utah, and Wyoming. 

KILLING TWO BIRDS WITH ONE CRYPTO-MINE?

Last year, Wesco Operating Inc., an oil and gas company based in Casper, Wyoming, found itself with a flaring problem. It was burning off enormous amounts of natural gas from one of its Utah wells and its flaring permit was close to expiring. So the company called in in EZ Blockchain, a startup with offices in Chicago, L.A., and Estonia, to install a generator and mobile cryptocurrency mine on the well pad. 

Now the methane that would have been flared is fueling the generator, which in turn is powering the crypto-mining machine. Similar set-ups are being installed by a variety of companies in oilfields all over the world. It allows oil companies to stop flaring and gives crypto-miners a cheap source of power to run their operation (sometimes the startups lease the machines to the oil company, which then reaps the bitcoin profit, other times the third-party pays for the gas and gets the bitcoin). With states enacting stricter rules on emissions from the oil and gas sector, and the feds set to crack down, as well, oil companies will have more reason to turn to such solutions. 

While this lessens the environmental impact of flaring, it does not eliminate it by any means. Since a generator works more efficiently than a flare, there are now little to no methane emissions. Yet the generator is still burning fossil fuel and is therefore still emitting carbon dioxide, a greenhouse gas, along with other pollutants in the exhaust. 

Meanwhile, the crypto-mining operation is using methane that could otherwise be piped to homes and industry and power plants to serve purposes that offer more value to society than adding to a digital pot of currency that exists only in an elusive digital form. If the methane used in the crypto-mining operation were sent to market, it would generate royalties for the federal government and severance taxes for the state. But since it’s utilized on site, it most likely will generate nothing—thus far cryptocurrency isn’t taxed until it’s sold for analog currency. In Wyoming this giveaway of taxpayer money has been codified by a bill signed into law just last month, which exempts such operations from taxation. 

As long as society insists on sucking fossil fuels out of the earth, miners continue to prospect for bitcoin, and cryptocurrency continues to be based on its current, energy-hungry ways, then the well-pad crypto-mining operation probably makes sense. But underlying that is a more pertinent question, which is whether things like cryptocurrency and fossil fuel extraction are really necessary in the first place. 

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For more reading on cryptocurrency’s carbon problem, check out Ketan Joshi’s extensive—and constantly updated—post on it.

Also, see the Cambridge Bitcoin Electricity Consumption Index and Digiconomist.net.

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