Oil, Gas, and Cryptocurrency

Oil and gas companies often struggle with what to do when they accidentally hit a natural gas formation while drilling for oil. Whereas oil can easily be trucked out to a remote destination, gas delivery requires a pipeline.

One solution is to vent the gas directly into the air. The other option is to flare, or burn off the natural gas.  But even with a flare, some of the methane is vented without being combusted. 

A recent trend, however, is beginning to leverage gas that would otherwise be flared off.

The emerging cryptocurrency market is becoming a new partner for some oil and gas operations.

Some Cryptocurrencies such as Bitcoin have a notoriously large carbon footprint to power the servers required to run their mining operations. The energy that’s used for these Bitcoin-type operations is consumed by computer equipment associated with mining, and by writing entries to blockchain technology ledgers that record and verify transactions happening across the network.

(Blockchain is a system of recording information in a way that makes it difficult or impossible to change, hack, or cheat the system. A blockchain is essentially a digital ledger of transactions that is duplicated and distributed across the entire network of computer systems on the blockchain).

Bitcoin miners care most about finding cheap sources of electricity to power their servers—A significant portion of the costs associated with cryptocurrency mining businesses are the energy required to meet the needs of the computing power that processes the complex algorithms associated with Bitcoin production.

Some companies, such as Core Scientific, are utilizing large facilities that are already well-equipped for handling high energy use— such as a once-abandoned steel mill in Calvert City to operate a blockchain facility.

However another business model is beginning to leverage mobile units that are equipped with immersion tanks in which crypto mining hardware can be installed, and spot generators where flare gas can be converted to electricity to mine Bitcoin. This creates a particularly tempting situation for certain oil and gas operations, partnering with crypto miners and these portable mining rigs to leverage these stranded energy sources to generate the power they need.

Many companies are beginning to market this technique as a “greener” alternative to allowing methane to be flared off. However the counter-argument is that this is a false choice that allows oil and gas operations to be more profitable, allowing oil and gas operations to continue, or worse, spur new industry growth.

There are many questions that are still to be answered for this fast-growing industry, and Kentucky’s long history of oil and gas development may play a significant role.

Further reading:

Bitcoin’s Impact on Climate and the Environment—Columbia Climate School, Sept. 2021

Why Bitcoin is Bad for the Environment— New Yorker, April, 2021