Flared natural gas latest prize in bitcoin miners’ energy quest

As the value of bitcoin soars and concerns rise about the  energy-intensive process needed to obtain it, cryptocurrency  entrepreneurs in the United States believe they have found a solution in  flared natural gas.

Profitably creating, or mining, bitcoin and  other cryptocurrencies requires masses of computers dedicated to solving  deliberately complicated equations -- an endeavor that globally  consumes more electricity than entire nations, but for which these  start-ups say the jets of flaming gas placed next to oil wells are  perfect power sources.

"I think the market is enormous," said  Sergii Gerasymovych, CEO of EZ Blockchain, which has six different data  centers powered off natural gas in the US states of Utah and New  Mexico, as well as in Canada.

Across the country, companies  like EZ Blockchain are setting up shipping containers where racks  containing hundreds of computers mine cryptocurrency, fueled by natural  gas from oil wells thatotherwise would be burned in the open.Interest in  their work has grown over the past year.

Bitcoin and other  cryptocurrencies like ethereum and dogecoin have seen meteoric price  spikes since the Covid-19 pandemic turned the global economy on its head  and mainstream companies began to embrace the technology.

But  a backlash has formed against the digital assets' energy usage, fueled  by concerns it relies on carbon-emitting power sources that contribute  to climate change.

This week, Tesla boss Elon Musk criticized  bitcoin's power consumption, particularly of energy produced from coal,  and said he would no longer accept the cryptocurrency as payment for his  electric cars.

While entrepreneurs in the fledgling industry say  using natural gas that is otherwise wasted represents a solution to  these concerns, its ability to actually cut emissions remains to be  seen, said Tony Scott, managing director of analysis at oil and gas  research firm BTU Analytics.

"In the grand scheme of things and relative to other load, yes, it's small," Scott said.   "They are creating economic value (but) they're not necessarily significantly changing the emissions profiles.

Huge  numbers of processors worldwide are dedicated to the task of mining  bitcoin. The activity uses 149.6 terawatt-hours per year, according to  the Cambridge Bitcoin Energy Consumption Index (CBECI). That is slightly  less than all the electricity consumed by Egypt.

As the most  popular cryptocurrency, bitcoin is undoubtedly valuable, trading at  around $50,000 in mid-May from less than $10,000 a year ago, giving  miners incentive to find the cheapest source of power to increase their  margins. Enter flared natural gas. Oil producers flare natural gas if  they can't find a way to process it, which, with prices low and  pipelines complicated to build, can be the case worldwide.

"Miners  tend to be based around areas where there tends to be surplus power.  What is new... is this whole concept of taking gas flaring," said Jason  Deane, bitcoin analyst at Quantum Economics.

Flaring combusts many  of the greenhouse gases in natural gas, but the International Energy  Agency said the approximately 150b cubic meters of natural gas flared  worldwide in 2019 put out about the same amount of carbon dioxide as  Italy.

Using flared gas to power the application-specific  integrated circuits that mine bitcoin does not end emissions entirely,  but is more efficient than flaring it and puts energy that is otherwise  wasted to use.

"We come in, they're making zero for their  gas, we say, hey, we'll come in (and) take the gas off your hands, give  you a little something," said Matt Lohstroh, co-founder of Giga Energy  Solutions.

"We'll be able to reduce your emissions you're putting out, combust it, create economic value on our end.

Natural  gas's edge is in the cost of power. CBECI estimates the average global  power cost for bitcoin mining is about $0.05 per kilowatt hour.

Lohstroh  said natural gas power can bring the kilowatt hour cost to below  $0.018.Interest has grown in diverting flared gas to cryptocurrency  mining, and not just because the digital assets are growing in value.

"There's  more scrutiny on issuing new flare permits and I think these producers  are realizing that," said Britt Swann, who is leading holding company  Ecoark's expansion into cryptocurrency mining.

"They are willing to play ball and figure out a way to use that gas without necessarily wanting any value for it.

"Where  companies differ is over what to do with bitcoin and other digital  assets once they get it.Ecoark intends to convert it into dollars, but  Lohstroh plans to hold the bitcoin he mines, which he believes will one  day underpin a new global financial system.

"No need to sell the most valuable asset in the world that's underpriced," he said.