A “false solution”? How ‘crypto mining’ has become the oil industry’s new hope

In January 2019, Chase Lochmiller and Cully Cavness, former high school buddies in Denver who had recently reunited, drove out to the snowy plains of Wyoming to bring a piece of tech culture to the heart of America. Shivering in temperatures of minus 29 °, they installed a prototype of their creation: a machine that takes advantage of the “waste gas” from oil rigs to provide power for cryptocurrency mining.

Cryptocurrencies like bitcoin – the most popular decentralized digital currency – emit an exorbitant carbon footprint (in one year, bitcoin mining alone consumes about half the electricity of the whole of the UK in the same period). So, to harness a cheap energy source for their bitcoin mining (or ‘crypto mining’) operations, Lochmiller and Cavness partnered with oil companies to reuse a by-product, primarily methane, which is typically vented or burned. in torches.

“We flipped the switch and saw all the bitcoin mining servers turn green, and we could see the flame coming out of the torch shrink a little bit,” says Lochmiller, a self-described “city boy” who had never put standing in an oil field.

“It was kind of a Frankenstein moment: ‘Oh my God, he’s alive!’

Its creation is part of a wave of tech startups that are eyeing the oil and gas sector to help fuel the cryptocurrency boom. Lochmiller and Cavness, who created a bitcoin mining company called Crusoe Energy, see their proposal as the union between two problems capable of “solving” each other: the waste of gas that contributes to the climate crisis and the need for cheaper energy to as the popularity of cryptocurrencies is on the rise.

Environmental experts, however, warn that this is a “false solution” as long as oil and gas production continues to be allowed. The world’s top authority on climate science concludes that only a drastic reduction in greenhouse gas emissions will help prevent a climate disaster. The mere search for alternative uses for “waste gas” does not address the urgent need to curb the consumption of fossil fuels. If anything, the researchers warn, oil companies could feel incentivized to drill further.

“At the end of the day, they keep burning natural gas,” says Arvind Ravikumar, a methane researcher at the University of Texas at Austin, who calls ‘torch mitigation’ and companies proposing similar technologies a ‘scam’.

However, Lochmiller and Cavness say their work helps the industry produce oil in the cleanest way possible, buying time or “expanding the runway” for the energy transition.

His company has attracted high-level investors, such as Bain and Winklevoss Capital, and has raised $ 125 million in its second round of financing in April. They plan to install 100 bitcoin mining data centers by early 2022, adding to the already existing 65 units.

Crusoe has registered their solution as “digital torch mitigation”. The company installs fleets of data centers, which hum in structures similar to shipping containers located next to oil rigs. Oil producers are paid for residual gas that they would not otherwise use, as it is cheaper to burn it than to pay for transportation to market it. In return, Crusoe can use the by-product to power energy-intensive IT operations on-site.

Data centers consume enormous amounts of energy because there is no centralized “bank” that stores cryptocurrencies. Instead, the new coins are created by solving complex equations that require great computational power for authentication. The currency is then recorded in a decentralized ledger, known as a ‘blockchain’, which is also resource intensive to maintain.

This new technology comes amid the “great mining migration” that is taking place in the United States after China banned cryptocurrency mining in September. And due to renewed global interest in reducing methane emissions – a very potent greenhouse gas and the main “waste gas” in combustion associated with oil extraction – this procedure is in vogue.

Pro-oil regulators, elected officials, industry groups and financial services giants have taken notice. Jim Wright, director of the Texas Railroad Commission, the state agency charged with regulating oil and gas, tells The Guardian that modular mitigation facilities like the one at Crusoe are “very attractive.” Texas State Senator Ted Cruz is also a fan of this proposal.

For their part, North Dakota lawmakers, both Democrats and Republicans, this year passed a law that allows oil producers to get a tax credit if they use flare mitigation at their refineries. Crusoe, who is based in Williston, North Dakota – in the heart of the Bakken shale formation, the largest oil field in the US – worked closely with lawmakers to get the law passed.

According to Paasha Mahdavi, a political science professor at the University of California, Santa Barbara and co-author of a 2020 paper on methane mitigation measures, new technologies that stop gas flaring appear to reduce emissions.

But in practice, he says, projects designed to capture gas that would otherwise be burned or vented have led to an overall increase in gas production. After all, they create a new source of demand. “It’s like we have a leaking gasoline line and instead of fixing the problem, we plug in a Humvee off-road vehicle next to the leak and leave the engine running in perpetuity with the air conditioning on full blast,” says Mahdavi.

Cavness, the CEO of Crusoe Energy, known as “Electron Cowboy” on Twitter, grew up imagining he would join the family business. He would land an internship at Shell and follow in the footsteps of his father and grandfather to build a career in the oil and gas industry.

But Cavness came to Middlebury College, a prestigious liberal arts school in Vermont reputed to be the alma mater of the founders of the global campaign against climate change, 350.org, and home to the university movement to divest from fossil fuels. “The weather was taking over the whole conversation,” says Cavness, noting that he felt pressure to downplay his origins.

Having stepped into the bottomless pit of climate change in Middlebury and spent the year after graduation studying the “morality of energy,” Cavness’s work prickled his conscience. The thought of the immeasurable amount of gas that the industry was wasting made him sleepless. According to the International Energy Agency (IEA), 142 billion cubic meters of gas were torched in 2020, the energy equivalent of providing electricity to 49 million homes.

When Cavness reunited with Lochmiller in 2018 during an 18-hour hike in the Rocky Mountains, they hatched a plan. Lochmiller, a San Francisco-based MIT graduate, had recently left his position as a partner in a cryptocurrency investment firm. For his part, Cavness was in another company that invested in oil and gas. Together, they would combine their worlds: bitcoin and oil.

Not surprisingly, the option of burning gas to mine bitcoin is tremendously attractive to the sector. Crusoe’s data centers are installed at no cost to producers, who make money from gas that they would not otherwise get.

“It’s essentially a free offer for the oil company,” Cavness explained earlier this year at the Developing Unconventional Gas virtual conference, organized by Hart Energy for the Bakken and Rockies regions.

Cavness and Lochmiller say they are at the forefront of the latest climate research. But critics warn that his company fits into the techno-optimistic ecosystem of Silicon Valley, where the search for innovative solutions can blind even entrepreneurs with the most extensive knowledge of climate change.

Climate change experts point out that Crusoe’s attitude and the “solution” they propose reflect a selective understanding of science. Even the most conservative forecasts say that oil and gas exploration must stop immediately to avoid the worst impacts of the climate crisis, including the unnecessary loss of human life. But despite Crusoe making weather his trademark, Lochmiller confirms that the company supports ongoing exploration and drilling.

As Cavness sees it, fossil fuels will continue to exist, even after his daughter, who is now a girl, ages or reaches the end of her life. If the oil industry will be “necessary to sustain life on the planet” anyway, Cavness wonders, why not drill as cleanly as possible?

While Crusoe officials say their digital torch mitigation technology is buying time for new clean energy sources, some fear their strategy is tantamount to putting a plaster on a deep wound. Of the environmental experts who responded to requests for comment, including high-level methane researchers, political scientists and climate analysts, nine out of ten say that oil and gas exploration and new drilling – even if they are equipped with methane mitigation technologies — they are not in keeping with a future in which curbing global warming follows international climate commitments.

Of this group, the only dissenting voice, an academic and co-founder of a greenhouse gas monitoring company, says that continued exploration and drilling “probably” can be done cleanly.

Climate experts are more divided on the extent to which cryptocurrency operations should be allowed to consume renewable energy. Three of the ten climate experts he spoke to The Guardian they were intrigued by an element of Crusoe’s model.

As in the waste gas operations, the company has a set of data centers programmed to operate with wind farms, which in turn are designed to take advantage of the energy available when the number of gigawatts generated exceeds the demand. According to Crusoe, the company’s ability to pay for that energy will allow renewable energy developers to finance new fleets.

But not everyone is optimistic. Heather Price, an atmospheric chemist and professor at North Seattle College, worries that torch abatement technology is little more than a ‘greenwashing’ tactic aimed at putting a positive image on fossil fuels.

“I have no faith that this cryptocurrency torchlighting is going to be a temporary situation,” he says. “The fossil fuel industry and cryptocurrency companies should not receive praise for this move.”

Translation by Julián Cnochaert.

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