On August 28, 2020, oil and gas giant Equinor announced that it would be cutting its future flared gas volumes and bringing waste-gas to market by generating electricity and mining on the Bitcoin network. Equinor’s plans involve partnering with Denver-based firm Crusoe Energy Systems — Digital Flaring Technology.
Five months before Equinor’s announcement (on March 5, 2020), Greenidge Generation LLC, a Dresden, New York-based natural gas power plant, announced that it could be making $50,000 per day with its excess energy if it were mining bitcoin. Greenidge Generation installed 7,000 bitcoin miners and upgraded facilities in order to maximize the amount of natural-gas energy that it could bring to market.
Both of these stories were Bitcoin industry-rattling news upon their announcements, especially to those of us paying close attention to the energy industry. The fact that these massive and well-established energy firms are investing in mining bitcoin establishes a profound truth: bitcoin mining is a serious and emerging energy-demand market that will shift the ways in which energy producers allocate resources in the future. Some of these producers are even sovereign nations — both Iran and Venezuela have announced the nationalization of mining the bitcoin network.
The Potential For Stranded Natural Gas In Bitcoin Mining
One key vertical within the energy industry is the power generation sector. These are commonly known as natural gas power plants, coal-fire power plants, etc. While these enormous facilities primarily exist to power cities and towns, there is another facet of this market that is not so commonly seen. They also serve rural industries and populations — also known as emerging and remote communities.
Due to the amount of stranded natural gas in North America (the U.S. and Canada, especially) there are companies looking to capitalize on the increasing demand for consistent and resilient power, even in remote areas.
This energy demand may come from manufacturers with automated production plants where the primary operating cost is electricity, or remote agricultural infrastructure demanding electrical power away from the grid. It is safe to say that there is no shortage of demand for resilient and economic electricity, however it has rarely been economic to supply remote power generation — until bitcoin mining came along.
Natural gas that cannot be accessed via conventional means due to lack of pipeline infrastructure can be compressed and used to generate electricity, mitigating the cost of power significantly.
However, there are other factors to consider when generating rural power, especially with stranded natural gas as the source. One of the most significant being the need for modular infrastructure. It isn’t economic to invest in building permanent infrastructure — after all, if the natural gas source depletes, then permanent infrastructure is a sunk cost. Additionally, if generating power is purely a means to reduce cost (rather than increase revenue by selling that power at a discount relative to the grid), how long until the cost savings return a positive on the overall investment of building a modular power plant? Oftentimes, the discount isn’t worth the infrastructure cost unless it is compounded by a revenue stream — ultimately, it isn’t a very attractive investment.
With bitcoin, there is a market where that electricity can be sold. No agreements need to be signed, no handshakes. By mining bitcoin, this natural gas can be brought to market by generating electricity, powering ASICs and contributing computational work to the Bitcoin network.
So, the question is: Is it economic to build a modular natural-gas power plant?
Yes, but profitability traditionally relies solely upon intricate financing and cheap debt, rather than the value of the electricity provided. But this equation shifts and any investment in building power-generation infrastructure becomes more economic because of the emerging energy-demand market known as the Bitcoin network.
Of course, due to the required modularization of the power generation, the amount of power produced is typically lower than an established power plant built into legacy energy infrastructure, likely supporting a large population. These “natural gas power plants on wheels” can still produce a hefty amount of electricity — upwards of 25 megawatts. Now, it is more economic for companies to build this modular infrastructure, use it to supply cheaper power for a multitude of purposes that all have the same cause — a lack of access to pipeline infrastructure, as well as reliable and economic electricity.
So, how does bitcoin mining change anything?
Well, anytime there is excess electricity for those providing remote power (electricity beyond demand that cannot be stored) they might as well use that to fire up some Antminers, contribute computational work to the bitcoin network and get paid in bitcoin equivalent to the work contributed.
Sure, the fact that bitcoin may become a corporate treasury reserve asset is huge news — don’t misunderstand me. However, it is my opinion that the implications which are brought about from bitcoin (and bitcoin mining) entering the financial industry pale in comparison to the implications that arise from BTC entering the global energy production industry.
But, much like how PayPal’s industry-shaking announcement followed Square’s, which followed MicroStrategy’s, the same question exists in the energy production industry — when/who will be the next to announce an integration of bitcoin mining into their business model?
Over the last couple of years I have curated a network of serious and driven individuals in both the upstream energy industry, and the bitcoin mining industry. These things are happening.
Keep your ears to the ground. Innovation is always just around the corner.
This is a guest post by Adam Ortlof. Opinions expressed are entirely his own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Originally published at https://www.nasdaq.com on November 5, 2020.