Bitcoin mining using stranded natural gas is the most cost-effective way to reduce emissions
`
`1 min read
`
`05 Sep 2022
`
`Share
`
`Bitcoin mining using
`stranded natural gas is the
`most cost-effective way to
`reduce emissions
`
`Mitigating natural gas flaring by mining bitcoin is a more
`cost-effective way of reducing greenhouse gas
`emissions than building wind or solar plants. This article
`explains the problem of gas flaring and shows how
`bitcoin mining is a solution.
`
`Emissions Avoidance per $1,000 Investment
`
`6.32
`
`1.3
`
`Mitigating Gas Flaring by Mining Bitcoin*
`
`Wind
`
`0.98
`
`Solar
`
`7
`
`6
`
`5
`
`4
`
`3
`
`2
`
`1
`
`0
`
`Tons CO2 Equivalents per Year
`
`Source: Crusoe Energy’s Digital Flare Mitigation System
`
`This article is an excerpt from our research report titled
`"How Bitcoin Mining Can Transform the Energy
`Industry". Click here to access the full report.
`
`Written by
`
`Jaran
`Mellerud
`Analyst
`
`Anders
`Helseth
`Vice
`President
`
`Related Tags
`
`Energy
`
`Mining
`
`Bitcoin
`
`https://k33.com/research/archive/articles/bitcoin-mining-using-stranded-natural-gas-is-the-most-cost-effective-way-to
`
`Natural gas is produced as a byproduct of oil drilling.
`
`PGR2023-00039 - Upstream Data
`Ex. 2020 - Page 1
`
`

`

`Bitcoin mining using stranded natural gas is the most cost-effective way to reduce emissions
`
`Natural gas is produced as a byproduct of oil drilling.
`Harnessing this gas for consumption is not always
`economically viable for oil producers. In these cases,
`the oil producer burns the gas on-site in a process
`called flaring.
`
`Gas flaring creates emissions without deriving any
`utility. In addition, the flaring process releases higher
`amounts of methane into the air than using the gas to
`generate electricity.
`
`Gas flaring is a significant polluter
`
`Oil depressurizes on the surface into liquids and gas
`(primarily methane) in oil extraction. Gas is worth less
`than oil by volume and is more difficult to transport, so
`most oil companies consider the gas a cost center. If
`the oilfield is located close to population centers, it
`might be economically feasible to build pipelines and
`transport the gas for usage as electricity or heating. But
`in many oil drilling locations, this is not the case. The oil
`producer then chooses to dispatch the gas in the most
`cost-effective way, which is simply burning the gas in a
`process called gas flaring.
`
`Gas flaring emitted more than 500 megatons of CO2
`equivalents in 2020.35 Assuming a typical car emits
`about 4.6 tons of carbon dioxide per year, emissions
`from gas flaring equate to that of more than 100 million
`cars. In comparison, generating the electricity used by
`the Bitcoin mining industry emitted 41 megaton CO2 in
`2021 – only 8% that of gas flaring.
`
`Carbon Emissions of Gas Flaring and Bitcoin Mining
`
`240
`
`265
`
`600
`
`500
`
`400
`
`300
`
`200
`
`100
`
`Megatons of CO2equivalents
`
`https://k33.com/research/archive/articles/bitcoin-mining-using-stranded-natural-gas-is-the-most-cost-effective-way-to
`
`41
`
`PGR2023-00039 - Upstream Data
`Ex. 2020 - Page 2
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`

`

`Bitcoin mining using stranded natural gas is the most cost-effective way to reduce emissions
`
`0
`
`Gas Flaring
`
`41
`
`Bitcoin Mining
`
`CO2
`
`Methane
`
`Source: The World Bank, CoinShares
`
`If instead utilized, the flared gas could produce almost
`700 TWh a year, which is more than the electricity
`consumption of all but five countries in the world.
`
`Gas flaring occurs on oil production sites and is hence
`geographically concentrated. The most flaring intense
`oil regions are found in the U.S., the Middle East,
`Russian Siberia, and Africa. By country, Russia is the
`biggest gas flarer, flaring about 25 billion cubic meters
`of gas each year.
`
`Source: The World Bank
`
`Iraq and Iran are the second and third largest countries
`by flaring volume, flaring close to 30 billion cubic
`meters of gas combined. The United States, where
`many smaller oil producers are unable to coordinate the
`building of pipelines, flares about 12 billion cubic meters
`of gas each year, while Algeria rounds out the top 5
`countries by flaring volumes totaling close to 10 billion
`cubic meters a year.
`
`Bitcoin mining can help mitigate natural gas
`
`https://k33.com/research/archive/articles/bitcoin-mining-using-stranded-natural-gas-is-the-most-cost-effective-way-to
`
`PGR2023-00039 - Upstream Data
`Ex. 2020 - Page 3
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`

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`Bitcoin mining using stranded natural gas is the most cost-effective way to reduce emissions
`
`flaring
`Bitcoin mining is emerging as the superior technology
`for reducing natural gas flaring. Flaring exists due to
`difficulties in taking natural gas to the market, but
`bitcoin mining solves this problem by taking the market
`to the natural gas. How does it work?
`
`The previously flared natural gas is pumped into a
`generator, where it is burned inside a controlled
`environment to produce electricity. This electricity is
`then used to power machines that produce bitcoin. The
`income from the bitcoin mining operation is used to
`finance the infrastructure.
`
`Bitcoin Mining with Natural Gas that Otherwise Would be Flared
`
`Step 1
`
`The oil well
`produces waste
`natural gas
`
`Step 2
`
`Instead of flaring
`the natural gas, it
`goes into a
`generator to
`produce electricity
`
`Step 3
`
`The electricity is
`used to mine
`bitcoin, which
`finances the
`operation
`
`Source: Arcane Research
`
`For example, by burning the natural gas in a controlled
`environment inside an electric generator, Crusoe
`Energy's Digital Flare Mitigation® technology can
`combust 99.89% of the methane, compared to only
`around 93% with flaring. This reduces CO2 equivalent
`emissions by about 63% compared to continued flaring.
`In addition to reducing emissions by preventing
`methane leaks, oil field bitcoin miners outcompete grid-
`connected bitcoin miners and thus offset their energy
`consumption.
`
`Emissions Avoidance Per 1 MW System
`
`9,482
`
`10,000
`
`8,000
`
`https://k33.com/research/archive/articles/bitcoin-mining-using-stranded-natural-gas-is-the-most-cost-effective-way-to
`
`PGR2023-00039 - Upstream Data
`Ex. 2020 - Page 4
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`

`

`Bitcoin mining using stranded natural gas is the most cost-effective way to reduce emissions
`
`1,917
`
`Mitigating Gas Flaring by Mining Bitcoin*
`
`Wind
`
`1,278
`
`Solar
`
`8,000
`
`6,000
`
`4,000
`
`2,000
`
`0
`
`Tons CO2Equivalents per Year
`
`Source: Crusoe Energy’s Digital Flare Mitigation system
`
`Numbers show that mitigating gas flaring by mining
`bitcoin is perhaps the most powerful tool in our toolbox
`for reducing greenhouse gas emissions. Per megawatt
`capacity installed, a bitcoin mining system can provide a
`yearly reduction of 9,482 tons of CO2 equivalent
`emissions, compared to 1,917 for wind and 1,278 for
`solar.
`
`Emissions Avoidance per $1,000 Investment
`
`6.32
`
`1.3
`
`Mitigating Gas Flaring by Mining Bitcoin*
`
`Wind
`
`0.98
`
`Solar
`
`7
`
`6
`
`5
`
`4
`
`3
`
`2
`
`1
`
`0
`
`Tons CO2 Equivalents per Year
`
`Source: Crusoe Energy’s Digital Flare Mitigation System
`
`It's also by far the most cost-efficient way of reducing
`emissions. Per $1,000 investment, a bitcoin mining
`system reduces emissions of 6.32 tons of CO2
`equivalents per year, compared to 1.3 for wind and 0.98
`for solar.
`
`Bitcoin mining serves as a customer that can monetize
`the natural gas and help finance the required
`infrastructure to reduce emissions from flaring. At the
`
`https://k33.com/research/archive/articles/bitcoin-mining-using-stranded-natural-gas-is-the-most-cost-effective-way-to
`
`PGR2023-00039 - Upstream Data
`Ex. 2020 - Page 5
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`Token Valuation
`
`Industry Insights
`
`Bitcoin mining using stranded natural gas is the most cost-effective way to reduce emissions
`
`end of this article, we explain why bitcoin mining is the
`superior customer for this stranded natural gas.
`We have seen massive oil field bitcoin mining growth
`over the past few years. The growth is concentrated in
`the United States and Canada, but we have also seen
`Home
`Market Insights
`some projects in other regions where flaring is a big
`problem, like Russia and the Middle East.
`
`Both economic and environmental forces drive the rise
`of oil field bitcoin mining. Flaring natural gas on-site is a
`waste of an economic resource that the oil producer
`would instead want to sell for income. By mining bitcoin,
`either by themselves or through a third party, the oil
`producer can earn some money off the gas instead of
`letting it go to waste.
`
`Percentage of Gas Flared by Oil Producer Before and After Bitcoin Mining
`
`25%
`
`- 80%
`
`5%
`
`25%
`
`20%
`
`15%
`
`10%
`
`5%
`
`0%
`
`Before bitcoin mining
`
`After bitcoin mining
`
`* By one of Crusoe Energy’s partners
`
`Source: Crusoe Energy
`
`Environmental concerns and flaring regulations play the
`most prominent role in pushing oil producers to dip their
`toes into bitcoin mining. This is especially true in the
`United States, where state-specific regulations limit
`how much oil producers are allowed to flare as a
`percentage of their total production.
`
`Several of the world's biggest oil-producing countries
`and companies have endorsed the World Bank's "Zero
`Routine Flaring by 2030" initiative and the "Global
`Methane Pledge." These initiatives are major drivers for
`
`https://k33.com/research/archive/articles/bitcoin-mining-using-stranded-natural-gas-is-the-most-cost-effective-way-to
`
`PGR2023-00039 - Upstream Data
`Ex. 2020 - Page 6
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`Bitcoin mining using stranded natural gas is the most cost-effective way to reduce emissions
`
`reducing flaring and will likely result in even more
`stringent regulation as we approach 2030.
`
`Several companies and business models have emerged
`in this rapidly growing niche. The biggest company,
`Crusoe Energy, signs gas purchase agreements with
`major oil producers, installs its flare mitigation system
`close to the oil wells, and operates it. Crusoe Energy
`has termed the concept "Digital Flare Mitigation."
`
`Crusoe has helped several oil companies reduce flaring
`from their United States operations, including
`ExxonMobil39 and Equinor. Crusoe plans to enter the
`Middle East through an office in Oman as part of its
`partnership with the Oman government.
`
`Another leading company in this niche is Upstream
`Data, which pioneered the concept in 2017. This
`Canadian company's business model differs from
`Crusoe's in that instead of simply purchasing the gas, it
`sells equipment directly to oil producers so they can
`mine bitcoin themselves. Other companies with similar
`business models include E.Z. Blockchain, Giga Energy,
`and Jai Energy.
`
`Which properties of bitcoin mining make the process a
`superior customer of stranded natural gas? Oil wells are
`often located in remote places where it is difficult to set
`up and operate other energy-intensive power-to-x
`operations. Because bitcoin mining is an unconstrained
`location-agnostic process, bitcoin miners can come
`directly to oil wells to eat up the excess natural gas. In
`addition, since oil sites typically produce declining
`amounts of excess natural gas as they mature, an
`offtaker must be able to scale down its operation
`modularly. Bitcoin mining is a modular process since you
`can combine different numbers of machines into varying
`energy usage levels. Also, when oil wells deplete, the
`consumer should be able to follow the oil producer to a
`new site. A bitcoin mining system can be built into a
`
`https://k33.com/research/archive/articles/bitcoin-mining-using-stranded-natural-gas-is-the-most-cost-effective-way-to
`
`PGR2023-00039 - Upstream Data
`Ex. 2020 - Page 7
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`Bitcoin mining using stranded natural gas is the most cost-effective way to reduce emissions
`
`container, making it highly portable.
`
`Bitcoin mining's combination of location agnosticism,
`modularity, and portability makes it an ideal offtaker at
`scale for stranded natural gas. This makes it a valuable
`tool in our toolbox for mitigating gas flaring.
`
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`https://k33.com/research/archive/articles/bitcoin-mining-using-stranded-natural-gas-is-the-most-cost-effective-way-to
`
`PGR2023-00039 - Upstream Data
`Ex. 2020 - Page 8
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