Back in 2018, when another bear market depressed crypto prices, Sergii Gerasimovich was looking for cheaper sources of power. The CEO and co-founder of EZ Blockchain started learning about associated gas, a byproduct of oil drilling and a promising source of energy for miners, he told CoinDesk.
Gerasimovich, a Forbes 30 Under 30 winner in 2021, did some research and found out that flaring gas from oil wells creates much more CO2 emissions than cars, he said. And all that gas, which oil producers traditionally burn off, is actually a vast source of energy that can be used.
“One oil well has enough natural gas to power 1.5 megawatt of electricity continuously,” Gerasimovich said. “And there are thousands of them.”
This story is part of CoinDesk’s 2023 Mining Week, sponsored by Foundry.
However, using this source of energy, for bitcoin mining or any other purpose, is technologically challenging and not as cheap as it can seem. First of all, the gas coming out of oil wells is not pure methane but a mix of various gasses, like butane, propane and others.
That makes producing power expensive. Generators producing 1 megawatt of power from such sources can cost up to $700,000. And for a 10-megawatt farm, it would be $5 million, plus $1 million for installation works, Gerasimovich said. “And then, the oil and gas company says, well, sorry, the gas is not stable,” he added.
But Gerasimovich persisted because he liked the idea of using energy that would otherwise be wasted, as well as potentially assisting the environment, by using gas that causes climate change.
Associated gas, consisting of methane and some other hydrocarbon gasses, is a pollutant that plays a big role in the global warming – methane alone is 25 times more conducive to the greenhouse effect than CO2 (though it stays less time in the atmosphere). Agriculture is another industry producing a lot of methane, with livestock (think: belching cows) responsible for 14.5% of all global greenhouse gasses.
When a fresh oil well is drilled, the gas comes out together with the oil, and a drilling company needs to prevent methane from going into the atmosphere. Oil producers can do it several ways. They can flare (burn) the gas, so that instead of methane, CO2 is emitted. They can sell the gas via a pipeline or in the liquified form. They can generate electricity or synthesize materials like polyethylene from it. Or they can put it back underground. Gerasimovich thought to direct this byproduct to a power generator, make some electricity out of it and mine some bitcoin.
Proponents of crypto mining using associated gas argue that it helps avoid pollution from flaring and puts the gas to work instead of wasting it. But does it help the environment? The question is heavily contested.
Opponents say that bitcoin mining makes oil drilling more profitable and keeps it relevant longer than it should be, therefore delaying a switch away from fossil fuels. To environmentalists, using fossil fuels to mine bitcoin is a heinous luxury at a time of increasing weather weirdness.
So what’s the truth? CoinDesk looked into some numbers and facts.
Although there are different ways to deal with the associated gas, in reality, building infrastructure to deeply process it or deliver to buyers is expensive. Often, oil companies just flare it, even though they have to pay penalties. Those penalties, experts say, are often negligible compared to the oil and gas companies’ revenue.
The International Energy Agency characterizes gas flaring as an “extraordinary waste of money in addition to its negative impacts on climate change and human health.” The World Bank set the goal to cut flare gas emissions to zero by 2030, and some leading global oil and gas companies joined the initiative, including BP, Eni, TOTAL and Statoil.
In 2022, oil companies worldwide emitted over 357 million tons of carbon dioxide while flaring associated gas, the World Bank says. If all that gas was used to generate electricity instead, it would be enough to power the entire Sub-Saharan Africa, the organization said in a report.
However, if the oil field is in a remote location with no people living around it, there are simply no consumers to use this power and it’s hard to deliver it to the nearest village or city.
In some regions, regulators have been showing a more aggressive approach towards eliminating the flaring, forcing the companies to explore alternatives. For example, in Colorado, the state authorities prohibited flaring entirely, and in 2022, “half a dozen” oil producers were mining crypto on their sites, the Colorado Sun reported last August.
Using the associated gas to mine crypto might even be a more profitable way to deal with it than selling the gas as fuel. Last February, consulting firm Vygon Consulting estimated that using the associated gas available in Russia could bring miners up $1,4 billion a year in revenue, while selling the associated gas is only earning $77 million for the oil and gas companies.
However, using associated gas for mining is not without problems and miners don’t use it that often.
Five years ago, as Gerasimovich was doing his research, using associated gas for mining was new and bitcoiners were given the opportunity to use it for free, said Troy Cross, professor of philosophy and humanities at the Reed College. But once enough miners started moving to that source of energy the oil and gas companies started charging for it, Cross told CoinDesk.
So now, the price might not be the biggest advantage of associated gas-fueled energy, and there are some significant disadvantages. For one, it’s not coming in a consistent stream big enough to power the mining farm, which needs to be on 24/7.
When the oil well is first drilled, for the first few months, there is usually a lot of gas, but later, the stream becomes less consistent, with outputs fluctuating during the day, causing interruptions for the mining.
“Now you have enough gas for 1 megawatt, another time you only have enough for 600 kilowatts,” Gerasimovich said. “If you think of it as an entire process, it has more cons than pros for a miner.”
That convinced him that other than trying to mine on the oil fields, EZ Blockchain should rather provide equipment and technological services to the oil and gas companies that are willing to mine themselves. But he hasn’t seen a ton of interest from the fossil fuels industry so far. The incentives are just not there.
“Oil and gas companies are motivated to reduce emissions, but the regulations are not as scary as many people think they would be,” Gerasimovich said.
During the pandemic, when oil companies saw their revenues decline and they looked for sources of extra money, bitcoin mining became a more popular idea. Now, with prices for oil and gas higher, there is less motivation, Gerasimovich said.
Some researchers suggest extra revenue from bitcoin mining might incentivize oil and gas companies to drill new gas wells solely to power the mining farms.
“The heavy reliance on flare gas by Bitcoin miners is troubling and only perpetuates the use of fossil fuels that are the main drivers of the climate crisis,” said Alex Formuzis, a spokesperson for the Environmental Working Group, told CoinDesk in a written statement. “It’s imperative these mining operations and the broader cryptocurrency community follow the lead of Ethereum and others by changing the way they conduct business that is far less electricity intensive,” he added.
Gerasimovich disagrees. First of all, there is no widespread enthusiasm among the oil producers to start mining on associated gas, he said. In the U.S., only a dozen of oil companies bought EZ Blockchain’s mining containers, and usually it’s not big but mid-size companies.
With the current price of bitcoin and the regulatory uncertainty, bitcoin offers a minimal bonus to the oil and gas profits, Gerasimovich said. An operation that can power a one-megawatt farm would produce about 420 barrels of oil a day. With the oil prices around $75 for a barrel and the bitcoin price of today, the company would make $1,200 from mining and $18,000 from oil production, Gerasimovich said.
Joshua Archer, Greenpeace USA bitcoin campaign lead, believes this argument is only good until the bitcoin price rises. When the price gets more attractive, so will mining on the oil fiends, further encouraging the oil drilling, which simply should stop, he told CoinDesk.
“A continued growth of the bitcoin value will continue to worsen this problem,” Archer said of the continued usage of fossil fuels. The fact that the bitcoin network keeps swallowing more and more energy as it grows also is concerning, he said.
Greenpeace is advocating for bitcoin to switch away from the energy-consuming proof-of-stake mechanism altogether – a non-starter for bitcoiners who believe that proof-of-work is exactly what makes bitcoin uniquely decentralized and censorship-resistant.
On the other hand, from an emissions point of view, turning associated gas into electricity is better than flaring, a point environmental groups like WWF also agree with. Flaring can convert up to 98% of methane and other gasses coming out of an oil well into carbon dioxide and water, depending on the efficiency of the equipment. However, in reality, this efficiency is not that high, and often only 91.1% of methane gets destroyed.
“I think of bitcoin mining as a cheaper and more efficient flare stack,” Troy Cross said.
“If someone at MIT or CalTech stated they designed a flare stack that is 99% efficient under any conditions – I think you wouldn’t have an outcry from environmental groups that it’s increasing the profitability of oil companies, therefore it’s a bad technology,” he added.
But Greenpeace’s Archer believes that mining is a “false solution” to the fossil fuels pollution problem.
“Bitcoin is growing all the time, it’s becoming computationally more difficult, consuming more electricity and producing more emission. Talking about methane mining is a distraction from the conversation about the real need to drastically reduce emissions,” Archer said.
Gerasimovich believes bitcoin mining on associated gas deserves support, not blackballing from environmentalists. Oil and gas drilling is not going anywhere soon, and miners help address the issue that is not about to disappear tomorrow.
“Bitcoin miners are on their own. We don’t have special finances, government subsidies [like wind or solar energy producers do]. We succeed on our own and we fail on our own. But if it’s an environmental issue, we should work on this together,” he said.
Cross believes another plus of the flare gas mining is that miners normally use the sites where they are not competing for that associated gas and that electricity:
“We suddenly have a solution that requires nothing of us and gives us a benefit and we make no additional demand on the energy system. Any time you can use a waste product for an economic good that’s a win,” Cross said.
But it seems like environmentalists like Greanpeace can’t be convinced with this argument. The very fact that bitcoin miners are willing to work with the fossil fuels industry and provide it a “lifeline” – no matter big or small, is too damning.
“We’re still drilling [for oil] and we need to put a stop to that. Days of the oil and gas industry are numbered. We have an entire movement of people who are working tirelessly to avert the climate crisis and keep the oil underground,” Archer said.
Edited by Ben Schiller.
