In 1814, we took a little trip
Along with Colonel Jackson down the mighty Mississip’
We took a little bacon and we took a little beans
And we caught the bloody British in the town of New Orleans
— Johnny Horton
If you drive about an hour south of New Orleans, past where the traffic fades out and the blue tarps that dot the roofs turn to harsher forms of desolation, you will pass great oaks with Spanish moss and ruined shrimp boats impaled on dock pilings.
Eventually, you will arrive at the town of Jean Lafitte. From there, you get on a flat-bottomed steel boat with three 350-horsepower Mercury outboards hanging off the back. Another 40 minutes across the sprawling waters of Lake Salvador and up through some marshy inlets, you’ll find a couple of rusty old barges and a lot of “No Smoking” signs.
I was there last week to visit a small company with a good idea.
It takes flare gas from a producing oil well and, instead of burning it off, connects it to a turbine, thus changing the heat energy to electricity.
The company then takes that electricity and hooks it up to a bunch of servers to produce Bitcoin. It puts all this on a barge and ships it out to a low-cost field out among the alligators and water moccasins.
It’s a very cool setup, especially if you like heavy equipment on rusty barges in the middle of nowhere — and who doesn’t?
The company did the math and figured it could sell the natural gas for around $4 per MCF if it puts it in a pipeline. However, if it turned the gas into Bitcoin, it could sell it for around $30 per MCF.
This flare-gas-to-Bitcoin idea solves a number of problems.
Bitcoin Sucks Energy
First off, creating Bitcoin is very expensive in terms of energy. Fortune recently reported that every single Bitcoin transaction consumes over $100 in electricity:
The [MoneySuperMarket] report states that each Bitcoin transaction consumes 1,173 kilowatt hours of electricity. That’s the volume of energy that could “power the typical American home for six weeks,” the authors add. The Bitcoin mining that enables a purchase, sale, or transfer, it posits, uses a slug of electricity that costs $176. That number is based on an average worldwide cost per kWh of $0.09 over the past 12 months.
In many places such as Germany, the price per kWh is $0.33. Obviously, if you are a Bitcoin miner, you want to move your operations to the lowest-cost energy provider.
Flaring Gas Wastes and Pollutes
I’m sure you’ve seen pictures of active oil wells with giant flames burning on top of towers. This is called flaring.
All oil is produced alongside natural gas. There are a number of reasons to burn the gas. Flaring helps regulate the pressure on the well. Oil wells are unstable, and too much sudden pressure can cause a blowout. Blowouts kill people and destroy the environment.
Secondly, in many cases, it is cheaper to burn the gas than it is to capture and sell it because many wells are in remote places that aren’t close to pipelines or other infrastructure needed to convert it for use.
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The bad news is that flaring is extremely bad for the environment and wastes 142 billion cubic meters of gas each year. The good news is that governments and companies are taking it seriously. Flaring has dropped 14% since 1996 even as oil production has climbed 19%.
ExxonMobil and Crusoe Energy Systems
ExxonMobil liked the flare-to-Bitcoin idea so much that on March 24 it announced it would collaborate with Crusoe Energy to take some Bakken shale gas to power mobile generators and mine Bitcoin on site.
According to Bloomberg Green:
Exxon, the largest U.S. oil producer, is considering similar pilots in Alaska, the Qua Iboe Terminal in Nigeria, Argentina’s Vaca Muertashale field, Guyana, and Germany.
ConocoPhillips has also joined the club and announced it is supplying gas to a Bitcoin mining firm.
This is a trend that will see tremendous growth — at least until the next Bitcoin halving day in 2024.
Aside from the big oil companies and miners, there are also companies that make Bitcoin mining setups in portable containers that can fit on an 18-wheeler.
There are also the turbine producers and, of course, small, little-known wildcatters sitting out in the boonies with cheap gas and big dreams.
To your wealth,
Christian DeHaemer Christian is the founder of Bull and Bust Report and an editor at Energy and Capital. For more on Christian, see his editor’s page.
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