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Power-guzzling activities – namely bitcoin mining and training artificial intelligence (AI) models – are providing an outlet for one of the most difficult challenges operators face: limited takeaway capacity for natural gas.
In Utah’s Uinta Basin, XCL Resources gas production averages between 40 MMcf/d and 50 MMcf/d, but the company can only send a portion of that through pipelines at current capacities. Even after devoting a large amount of produced gas to electric fracturing units, the company still needed to find something to do with the excess produced gas. Otherwise, the company would be forced to shut in oil production, XCL President and COO Blake McKenna told Hart Energy.
“The classic way an oil and gas company would handle it in the ‘90s is to just flare their gas, vent it into the atmosphere, which is obviously something nobody is doing now,” McKenna said.
James Keeton, XCL’s director of production, said the goal was to find a use for the gas that would not harm the environment but still make money. Using the natural gas to power bitcoin mining seemed like a good alternative, he said, and XCL teamed up with Crusoe Energy on a pilot project using digital flare mitigation technology to monetize the gas.
“You can take a stranded asset, such as a group of wells without access to a pipeline, move bitcoin mining equipment to that location, and then you use it to monetize something that would have otherwise been considered a waste product, remotely, without having to lay a gas-gathering pipeline,” Keeton said. Bitcoin mining “has a really nice modular ability to basically monetize waste gas no matter where it's at.”
Keeton said using Crusoe’s digital flare mitigation technology can help an entire basin. The gas gathering pipeline network in a basin is a system, and mining bitcoin with some gas can “take a little pressure off of everyone,” he said.
McKenna said the bitcoin mining operation can be short or long term.
“What's interesting about bitcoin (mining) is it really in a way is almost a midstream competitor,” he said. “It gives us as operators another alternative to midstream.”
And in McKenna’s book, competition is a good thing.
“When you're thinking about the current environment, you want companies to be in competition with each other,” he said. “I want the best operators next to us. It makes us better. I want our pipeline company to have another competitor in the space that pushes them” to better performance.
With the right application, bitcoin mining can provide a less costly alternative to pipelines.
“This is a significantly cheaper, mobile option that allows us to go out and drill wells on the edge of basins without the burden of having to pay for a pipeline,” McKenna said. “It makes the chance that we go after and drill new gas or oil wells more likely … I can just go drill my wells, and make a deal with a company like Crusoe” to handle the produced gas through a digital pipeline.
He said XCL started negotiations with Crusoe in late 2022 and by May equipment was up and running at the pilot site, which was named Satoshi after the pseudonym used by the inventor(s) of bitcoin. In August, the companies announced a second site, which is known as the Hash Pad. That location is expected to be up and running by the end of November.
Tech behind the digital pipeline
Crusoe co-founder and president Cully Cavness told Hart Energy that the company’s digital flare technology captures otherwise wasted or flared natural gas and uses it to generate electricity. Then, the company “brings in the demand” for electricity, typically in the form of a modular data center.
What Cavness likes about the stranded gas and computing combination is that it solves the problem of stranded gas with another: the huge power draw required for compute-intensive activities such as cloud computing or bitcoin mining.
“It's really the combination of power generation assets and onsite computing infrastructure that consumes that energy,” he said. “Then we just simply transmit the data out of there, which is a much more lightweight, easy process than trying to transmit molecules or electrons. We like to say, ‘It is easier to move a bit than it is to move a molecule.’”
He sees digital flare mitigation technology as one solution to the world’s 10 Bcf/d flaring problem.
That volume of gas “could power more than two-thirds of Europe daily if it was captured and used beneficially, but it's not. It's lit on fire wastefully,” he said, adding that incomplete combustion of natural gas during the flaring process also results in the release of a significant amount of methane into the atmosphere.
“What we're able to do is come in, reduce that waste and reduce the methane emissions by capturing that gas and achieving something called stoichiometric combustion, where we basically get the right mixture of fuel and air in the combustion process to fully combust that natural gas. That's leading to almost complete combustion of the methane,” Cavness said.
Operators using Crusoe’s technology don’t pay Crusoe for the solution. Instead, Crusoe pays them through a purchase agreement for the gas, which it then uses to generate the power needed to run computing assets.
“From a business model standpoint, it creates a really nice positive feedback loop where it's the best thing to do for the environment and it's also the economically best thing to do for the operator because you're achieving some additional revenue from something that was previously a waste product and just going into a flare,” Cavness said.
Crusoe can deploy AI computing and/or bitcoin mining at the pad sites, and different uses call for different data center designs. AI computing is graphic processing unit (GPU) intensive while bitcoin mining uses application specific integrated circuits (ASICs).
“Basically inside of these modules, it's very sophisticated computing hardware, network engineering, electrical engineering, HVAC cooling systems and air handling systems,” he said. “From the outside it looks just like a rectangular box, maybe a shipping container size or slightly larger. Inside it looks like a proper data center and it just happens to be operating in the oil field, consuming otherwise wasted gas.”
Crusoe is also working to bring a similar solution to the renewable sector.
“We're finding that there's such a thing as stranded renewables,” he said. “We have a different kind of business model and approach, but at the end of the day, we’re trying to bring computing to solve a different type of stranded energy problem on the renewable side.”
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