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Crypto miners use natural gas “stranded” in wells to power energy-hungry rigs

Heard on:
Natural gas being flared from Texas oil wells.

If natural gas from oil wells can't be used or sold, it's sometimes flared, as above, or vented into the air. Some cryptocurrency miners see it as a potential energy source. Spencer Platt/Getty Images

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These days, when drillers finally coax some crude out of a fracked oil well, they get a byproduct: natural gas. 

Steve Barbour, a Canadian oil and gas engineer, has a handy analogy.

“If you open up a can of Coke, you have a bunch of foam. A bunch of gas comes out. Same deal in an oil well, there’s a lot of gas in solution. When you start producing that oil, the gas sort of breaks out,” he said.

If that well is close to a pipeline, that associated gas can be sold to a power plant or used to heat homes. But some wells are a long way from pipelines, and it doesn’t make economic sense to connect them. That gas is called stranded.

“If they can’t use it and they can’t sell it, then they burn it, generally,” Barbour said. “Sometimes they vent it.”

Burning it — often called flaring — is bad for the environment. It’s all the carbon dioxide with none of the benefits. Venting it straight into the atmosphere is worse because methane traps more heat than carbon dioxide, thereby accelerating the warming of the planet. 

For years, Barbour’s clients asked him what they could do with the stranded gas from their wells. 

In 2016, he got an idea. He learned about bitcoin mining, which runs computer servers 24/7 — tens of thousands of them worldwide soaking up as much electricity as all of Poland. 

He figured the stranded gas could provide some of that energy, but he also figured he wasn’t the first one to think of this. 

“I couldn’t really find anyone publicly,” he said. “I scoured all the forums and couldn’t find anyone talking about it. So I just built a — well, it took a while — but I designed and built the prototype and deployed it and then started my business based on that.”

What he built was a gas-powered generator connected to a shipping container full of crypto mining computers. That was in 2019. 

To drum up some business, he posted a video of his prototype on Twitter. 

The video caught Matt Lohstroh’s eye. He was studying finance at Texas A&M University but he had bought his first bitcoin in 2016 and said he was spending all his time trying to figure out how to make mining bitcoin his profession.

“My best friend, he had a very well known reputation for being an oil and gas family,” Lohstroh said. “So I called him up. I said, ‘Can you do this?’ He said, ‘Yeah, we got an oil well. You wanna try it?’ And we just went from there.”

His friend’s family has oil wells on about 100 acres in Buna, Texas, about a two-hour drive from Houston. They bought one of Barbour’s mobile mining units and set it up on one of the wells there. 

Lohstroh said they tested the unit’s efficiency, decided to tweak some things and started making gas-powered mining rigs themselves. They call their business Giga Energy. 

Lohstroh explained how a “Giga box” that sits next to an oil well just south of Texarkana, Texas, works. About $150,000 gets you a wired-up container; the generator and the mining devices are extra. The box can hold more than $1.5 million worth of computers.

“You have a natural gas well, it’s producing oil, it’s going to be flowing on the top pipe, and then you have natural gas flowing on the bottom pipe goes 8,000 feet into the Earth,” Lohstroh said as he walked around the well. “So, the natural gas flows just as a miniature pipeline. And then we bring that to the generator and literally just screw it into the generator, the inlet on the generator. So you have about 87,000 cubic feet of natural gas being burned per day. That crankshaft turns a generator, that generator puts out electricity.”

According to Lohstroh, this unit produces enough electricity to power about 720 homes in the area. 

In the world of bitcoin mining, that’s extremely small scale. A much larger mine in Rockdale, Texas,, has the capacity to use enough energy to power 333,000 homes. 

Lohstroh said scaling up is his company’s next mission. It’s signed deals with more than 20 smaller oil and gas companies. 

He doesn’t expect to sell one of his rigs to a major oil company anytime soon because the big, publicly traded companies are traditionally very cautious. But he said it feels like more and bigger energy companies are getting interested in crypto.

“And the way to figure that out is saying, ‘Hey, just sell me your gas, sign a gas-purchasing agreement. You take zero capital risk, and you get all the upside of selling your gas,’” he said.

Oil giant ConocoPhillips confirmed that it’s running a pilot program in the Bakken shale in North Dakota. Instead of flaring stranded gas, it’s selling it as fuel to third-party crypto miners. ExxonMobil is reportedly doing something similar.

This sounds like a win-win, right? 

“We should absolutely be capturing waste gas for energy,” said Michael Webber, an energy resources professor at the University of Texas at Austin. “So the idea of taking waste and turning it into electricity is a great idea. Taking that electricity into something value add, also a great idea. Is crypto mining the best use of those electrons? I mean, I don’t know.”

Those who believe that bitcoin mining will make them rich argue that it is, in fact, the best use of those electrons. On the surface, finding a use for natural gas that would otherwise be wasted is economically efficient, at least in the short term. But some aren’t convinced.

“These kinds of things are effective subsidies for continued oil and gas production,” said Paasha Mahdavi, an assistant professor of political science at the University of California, Santa Barbara, who studies methane mitigation measures. “They are essentially providing a new source of demand for fossil fuels.”

“It’s like if you had a broken gas line at home. Instead of fixing that problem, you just bought a new gas dryer and you just run it forever without any clothes in it,” he said. “That’s not a solution. That’s effectively what you have here with crypto mining and any kind of stranded gas or flared gas sites.”

Mahdavi doesn’t begrudge entrepreneurs for coming up with solutions to the problem of stranded natural gas. 

But instead of monetizing that flared gas, he thinks it would be far better to give oil and gas companies an incentive to repair leaky pipelines and deal with the bigger problem of greenhouse gas emissions.

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