Natural Gas And Bitcoin -- An Update -- June 14, 2020

Updates

January 15, 2021: mining in Siberia. Why not in the Bakken?

December 28, 2020: China is going to need a lot of coal. 

December 9, 2020: Jamie Dimon now says Bitcoin is "real."

November 25, 2020: Radio Free Europe. 

Original Post 

Bitcoin links on the blog:

• bitcoin and oil country, May 26, 2020; 
• from October 28, 2019: Must-read article: electricity, coal, natural gas, and the internet. A must-read. I would like to see the amount of "internet-electricity" compared with "bitcoin-electricity." Bitcoin mining uses huge amount of electricity. 
• from August 18, 2019: bitcoin mining; huge energy demands; coal demand up; this is a must-read post;

Today a reader sent me a note with a bit of a tease: natural gas, WPX, bitcoin. That's all I can post.

But that should be enough to suggest googling. If you do, you will come across this WSJ article from last year, March 29, 2019. It's behind a paywall, but there are ways to get around it.

Here is the lede:

A shipping container in a remote corner of a Canadian oil field is churning out an unlikely byproduct: bitcoin.

Inside the container, high-powered computers generating new units of the cryptocurrency run with hardly any human supervision; they just need power—lots of it.

In what seems a perfect marriage of supply and demand, that power is coming from natural gas with nowhere to go. 

Natural-gas prices have cratered over the past few years. The market is awash in the stuff, to the point where some North American producers are setting it on fire or paying people to take it away. In some parts of Texas, natural gas is now going for less than nothing for the first time on record. More companies are now looking at productive ways to use the natural gas right at the source.

The container sits next to an oil well owned by Black Pearl Resources Inc., near the town of Marwayne, Alberta (population around 600). Black Pearl is getting a good price for its crude these days. But for all the oil the site pumps, it also pulls natural gas out of the ground, which presents a problem.

Hauling it away to sell it isn’t economically viable for a location this remote, and it can’t just dump it either. Local governments in places like Alberta have limits on how much natural gas companies can burn or release in the air—“flare” or “vent” in oil field lingo. When that level is reached, producers may be forced to shut down oil wells to avoid a buildup of natural gas.

That has turned at least one traditional oilman into a bitcoin entrepreneur. Stephen Barbour, a consultant who helps lower costs for oil field companies, last year set up the 20-foot-wide container to mine bitcoin, with a power plant attached to convert natural gas into electricity. 

Later in the article:

Ryan Wartman, a production foreman for Black Pearl Resources, said that channeling about 400 cubic meters of natural gas a day to the bitcoin-mining rigs in Mr. Barbour’s container helps keep the wells operating 24 hours a day.

“It was the best option for us,” said Mr. Wartman. “We’re using it to bring ourselves below the government-regulated amount that we can vent on location and keep producing oil.”

Because bitcoin mining -- a process of solving complex equations to “make” new units of the virtual currency and earn transaction fees -- is so electricity-intensive, much of it is done in remote, chilly areas with cheap power, such as windswept parts of northwestern China. When bitcoin prices exploded in 2017, mining in North America also took off.
As the digital currency’s value has plunged over the past year, inexpensive electricity has become even more crucial for miners.

Now, more recently, from Bloomberg, March 5, 2020: this utility heats New York State -- and mines its own bitcoin:

• Atlas Holdings LLC-owned facility starts mining crypto
• Dresden-based natural gas plant installed 7,000 crypto miners
• archived here; 

A power plant in New York’s Finger Lakes region has set up its own Bitcoin mining operation, using the electricity it produces to generate about $50,000 worth of the virtual currency every day.

Atlas Holding LLC, the private-equity firm that runs the operation, has installed some 7,000 crypto mining machines at the Greenidge Generation plant in recent months that can mine about 5.5 Bitcoins per day. The 65,000-square-foot facility in Dresden, New York, was built in 1937 as a coal plant and later converted to natural gas.

The machines work off so-called “behind-the-meter” power, which makes it extremely low cost, the private-equity firm said. Because powering crypto mining machines is usually so energy intensive, miners have been roaming the world seeking out cheap electricity, such as that available from hydro power plants. Many met with an unwelcome surprise, when those utilities jacked up prices. But Greenidge said it’s power costs are predictable and low -- essentially, just costs of production, which can be offset by power-related services.

The server farm consumes about 15 megawatts of the 106 megawatts of capacity that the plant produces. While in the past the plant used to only run during times of peak energy demand -- during summer or winter -- it’s now operating year round.