How A Digital Asset Is A Solution To The Energy Problem: Part Three
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How A Digital Asset Is A Solution To The Energy Problem: Part Three
Utility | Efficiency | Profit | Innovation
Welcome to the final installment of this 3-part series. Where I will lay out the specifics as to why every energy system and governmental body should be interested in bitcoin mining. Let alone drooling at the potential.
Effective Utility
We will need to provide effective utility to that associated natural gas that is coming along with oil production. If there are indeed negative impacts to greenhouse gas accumulation, then we are behooved to mitigate any actual environmental ramifications associated with venting, or even flaring, of greenhouse gasses (‘GHG’ for short). Regardless of where the reader falls on this now re-sparked discussion, in large part thanks to Alex Epstein’s publication, Fossil Future — good thing that flaring gas is much, much less harmful than simply venting these GHG’s into our valuable atmosphere. However, burning of associated natural gas via internal combustion engine reduces these emissions even greater than flaring; at a rate of 99.98% efficiency (a 10% increase over flaring), according to the [CoinShares, January 2022 Bitcoin Mining Network: Energy and Carbon Impact Report].
To further corroborate this claim of flare efficiency being less efficient, or reliable, than internal combustion you will find a quotation below from the Flaring Emissions Report produced by the International Energy Agency (IEA), published in November of 2021 (emphasis added throughout):
“In theory, when equipment is well designed and conditions are optimal, more than 99% of flared natural gas is combusted. Over time, however – once production from an upstream asset has passed its peak and begun to decline – flow rates through flare stacks decrease and cause the flare stream to be more easily affected by environmental conditions such as higher or more variable winds. This can alter the flare flame pattern, resulting in lower combustion efficiency, or even extinguish the flame entirely, meaning that gas is vented directly to the atmosphere.
With current global operations and maintenance practices and regulations, we estimate average global combustion efficiency (including both normally operating and extinguished flares) to be around 92%. Unless company policies or government regulations strictly enforce flaring reductions, operational practices on flare maintenance can lapse, causing a significant number of flares to malfunction or remain unlit for extended periods. As a result, substantial volumes of methane, black soot and nitrogen oxides – all potent GHGs – may be released into the atmosphere.
To reduce flaring, productive uses for the associated gas must be developed, or associated gas must be safely injected into the reservoir. One solution is to channel associated gas into the main gas grid to meet local demand or to be exported. Entrepreneurs and engineering firms are also developing new measures to use or redirect the gas productively, even in the absence of a natural gas market.”
To add even more support for these claims I would like to also plug the paper produced by Kat Galloway, CEO of Artemis Energy and President of Bright Sky Environmental. Galloway and others have provided independently produced data corroborating the effectiveness of pushing associated natgas through a generator set as an approach for emissions reductions. The effective utility that makes the most sense is integrating ASIC miners into production operations and mine bitcoin by running that associated natgas through a generator-set that powers an induction motor to produce electricity. Giving this wide expanse of misfit energy a calling will allow for O&G producers to not only reduce their emissions but also earn an asset that improves life at quite literally every turn for them.
Why O&G Should Be (Are) Mining Bitcoin
What this integration does is provide a service to producers with a use-case of truly poetic timing with regards to the demands & constraints placed upon the hydrocarbons industry today. In a world where producers are being jerked around by getting clearance for drilling via lease agreements, but are being held hostage via EPA regulations, and/or being limited on individual state environmental restrictions, bitcoin mining provides an option that threads this outrageously tiny needle.
You want GHG emissions mitigated by 98-99%?
You want to allow domestic producers to pump more oil?
Producers want a more effective monetization strategy to maximize profits beyond simply pumping oil and then burning a valuable energy resource?
Copy all.
Flaring natgas when you could be mining bitcoin instead is just burning an opportunity to earn. Some may react with, “Well then you could just put datacenters on those locations and consume the energy that way, bitcoin mining isn’t necessitated.” While this is true, those datacenters operations, whether they sell rack space for cloud computing or whatever, the demand is not a guarantee. Because companies offer multiple vectors of operational risk. That means that the rate of consumption is also at risk; always. With bitcoin mining you get the exact opposite. As long as the bitcoin network is operational the demand will be there. All day, every day, regardless of calendar date.
I believe that this strategy can allow producers to meet greater output volumes while simultaneously appeasing EPA emissions regulations, and more than likely the majority of state-imposed environmental restrictions. Such as Colorado’s 92% emission mitigation, which resulted in an exodus of many smaller producers from the state that could not meet such demands.
On top of these direct benefits, there is the matter of handling bitcoin itself. Our producers have the freedom to choose what they do with this pristine asset. They can sell it immediately and capture a cash return thanks to the bitcoin market that is trading globally 24 hours per day, seven days per week, without holiday. Or, they can custody their bitcoin themselves, which — when done properly — is incapable of being stolen or seized via hacking (try and argue that position as a bank or brokerage).
Meanwhile, these Integrated Mining Operations (let’s call them IMO’s) are in-turn helping to secure the Bitcoin Network even further by increasing the amount of hashrate on the network; the greater the hashrate; the greater the amount of dedicated energy to the Bitcoin Network; the greater the amount of energy that would be necessary for bad actors to project in order to deploy a 51% attack. Effectively meaning that IMO’s directly contribute to the security and functioning of the very bitcoin that they are earning, and/or custodying.
Deploying these IMOs is not as simple as plugging an ASIC into a wall outlet and connecting an ethernet cable, however. While there are very many of those aspects included, it’s the environment on the side of the well pad, and the subsequent natural operations of the pad, that brings additional volatility to this nascent technological relationship.
Conclusion
I believe that by deploying bitcoin hashrate, to be integrated into operations to consume flare gas (excess or stranded), U.S. domestic hydrocarbon production can be increased substantially without needing to site fresh wells. By satisfying environmental regulatory restrictions via natgas & methane consumption in internal combustion engines, IMO’s can then [in theory] allow for producers to effectively increase yield without needing to spend on significant infrastructure inputs such as pipelines to transport the associated gas, or liquefaction facilities to transplant the resource. This increased output has the potential to satisfy domestic economic & energy demands, as well as serve America’s national security interests (the military uses quite a lot of oil products) by incentivizing reliable & cheap energy production.
Furthermore, by integrating bitcoin mining operations there’s the capability of monetizing bitcoin earned from a commodity that was literally being burned away at a loss to begin with. With Bitcoin, IMO’s serve only to strengthen the United States of America, quite literally at every angle.
Further Considerations For Electricity Generation
Peaker plants
According to PSE Energy, as of 2020 the US is supported by over 1,000 peaker plants across the country with concentrations in the Southwest, Southeast, and New England areas. Peaker plants (aka “peaking plants,” or “peakers”) are power plants that come online to produce electricity for the grid at moments of peak demand; hence the name. The reason that these plants are relied upon in scenarios of peak demand is their capability to spool-up and produce power on-demand, which is enabled by the use of hydrocarbons, and tend to be either natural gas or coal-fired power plants. These plants tend to run at a more expensive clip than most; precisely why the grid prefers to operate them only in times of absolute need.
What could be possible if these facilities were allowed to turn a profit by running, at curtailed capacity, consistently throughout the year and being used to mine bitcoin instead? Could this strategy help reduce the costs of relying on these plants in peak demand scenarios by giving them a tangential source of revenue throughout the rest of the year? I surely don’t have an answer, but it certainly is worth considering…
Bitcoin Miners & Grid Demands
Texas is wasting zero minutes in getting out ahead of their electrical grid issues by taking the helping-hand that bitcoin miners have been extending for years. Miners have been arguing that bitcoin mining can help electrical grids the world over by providing a buyer of first, and last, resort; with the capability to curtail operations at the behest of the grid. Where demand is too high (like during the summers where air-conditioning units are running full-bore) miners can turn down operations until stability is achieved. Braiins has produced some very high signal for this particular discussion. I would recommend, to all interested, in checking out their blog.
However, there is also another dynamic where bitcoin miners can help stability, but from the opposite side of the hydrocarbons aisle…
“Renewable” Energy
Bitcoin miner “Simple Mining” is getting paid by Iowa’s grid to take excess electricity from the swelling of wind & solar production within the state. Regardless of the reader’s political position on the renewables vs fossil fuels debate, one cannot deny the benefits that bitcoin mining can provide from these two very simple, elegant solutions.
When there’s too much supply; bitcoin mining can step in.
When there’s too little demand; bitcoin mining can step in.
When there’s too much demand; bitcoin mining can step aside.
Now consider how these two balancing forces can help provide not only grid stability for day-to-day operations, but also provide a new stream of income to local & state governments; capital that could (should) be used to upgrade distribution and transmission infrastructure to be capable of supporting expansion ahead of America’s coming (and necessary) energy renaissance.
One Last Thought
Has the Department of Energy (DOE) already seen within bitcoin mining the potential as a solution for the flare gas problem? Their report, dated August 2021, that was presented to Congress suggests as much. On page 11 of the document we can find the section titled “Flaring Reduction Technologies.” Within this section we are drawn to item number 4; “Converting natural gas to electric power using small-scale generators.”
I don’t know about you, but this sounds to me like the Department of Energy could potentially see bitcoin mining as a very valuable, powerful industry for insuring America’s own fossil fuel industry.
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How A Digital Asset Is A Solution To The Energy Problem: Part Three
Great work, Mike. Really tied it all together well. I look forward to more!