ExxonMobil, the top oil and gas producer in the U.S., is piloting a project to mine bitcoin in North Dakota, according to people with knowledge of the matter.
For over a year, Exxon has been working with Crusoe Energy Systems, a company based in Denver, said the people who asked not to be named because details of the project are confidential. Crusoe’s technology helps oil companies turn wasted energy, or flare gas, into a useful resource.
Similar to ConocoPhillips‘ mining scheme in North Dakota’s Bakken region, Exxon is diverting natural gas that would otherwise be burned off into generators, which convert the gas into electricity used to power shipping containers full of thousands of bitcoin miners. Exxon launched the pilot in late January 2021 and expanded its buildout in July.
While Exxon hasn’t talked publicly about its work in the space, Eric Obrock, a 10-year veteran at the company, said on his LinkedIn profile that from February 2019 to January 2022, he “proposed and led the first successful commercial and technical demonstration of using Bitcoin Proof-of-Work mining as a viable alternative to natural gas flaring in the oil patch.”
Obrock’s title on his profile is NGL industry outlook advisor, referring to the natural gas liquids market. Obrock told CNBC through a LinkedIn message that he’s been advised that he can’t speak to the media on this topic. Exxon didn’t respond to a request for comment.
Exxon’s bitcoin project isn’t really about making money from the cryptocurrency. Rather, the company has pledged to reduce emissions as part of an industrywide effort to meet higher environmental demands. In early March, Exxon joined other oil companies in committing to the World Bank’s “Zero Routine Flaring by 2030” initiative introduced in 2015.
The type of crypto mining arrangement it’s pursuing with Crusoe reduces CO2-equivalent emissions by about 63% compared with continued flaring.
Exxon’s bitcoin mining work in North Dakota was first reported by Bloomberg, which said the company is also considering similar pilots in Alaska, the Qua Iboe Terminal in Nigeria, Argentina’s Vaca Muerta shale field, Guyana and Germany.
Mining bitcoin in the Bakken
The problem Exxon and Conoco are addressing has existed for years: What happens when drillers accidentally hit a natural gas formation?
Unlike oil, which can be trucked out to a remote destination, gas delivery requires a pipeline. If a drilling site is close to a pipeline, producers can sell it right away. But if the pipe is full or if the gas is 20 miles away, drillers often burn it off. That’s why you typically see flames rising from oil fields.
In addition to the environmental hazards, drillers are also burning cash.
Enter bitcoin mining, which only requires an internet connection and can be done from anywhere. And because miners’ primary variable cost is energy, they’re incentivized to find the cheapest sources of power.
“This is just a great way to bring that demand to the wasted energy and solve two problems at once,” said Cully Cavness, president of Crusoe, whose backers include Valor Equity Partners, one of Tesla‘s largest investors. “Solve the energy appetite of bitcoin and solve the stranded energy, flare gas problem for the energy industry.”
Cavness said Crusoe has 150 employees and works with Norway’s Equinor ASA, Canadian oil producer Enerplus and Devon Energy, based in Oklahoma City.
Permits from North Dakota’s Division of Air Quality show Crusoe can run 20 portable engines, with 11 currently in use at well sites across the state. Two of the engines are operational at wells run by XTO Energy, Exxon’s oil and gas fracking subsidiary, at the Jorgenson Deep Creek Site. Cavness said most of Crusoe’s 80-plus data centers are deployed in the Bakken.
“We’re really moving the needle on flared volumes,” Cavness said. “More than 10 million cubic feet of gas per day that would be flared is not flared because we’ve deployed our systems.”
The World Bank, in its most recent Global Gas Flaring Reduction Partnership report, recognized Crusoe as offering an innovative solution to flaring.
Solving the methane problem
The Bakken formation became an important source of new oil production in the U.S. in the last couple decades with the boom in hydraulic fracturing, or fracking.
Craig Thorstenson has been working at the permitting program at North Dakota’s Division of Air Quality since 1989. He says North Dakota has always been an oil state to some extent, but growth in the Bakken lifted the state to second in the country, before it slipped to third last year.
Thorstenson, who was born and raised in Bismarck, the state capital, said the change “was quite a shock for us.” Residential housing couldn’t keep up with demand.
“We were having a population boom,” Thorstenson said. “People coming in, wanting to get jobs. People living in the Walmart parking lots.”
More drilling meant more wasted gas, which affected the entire Williston Basin that spreads across part of Montana, the Dakotas and into Canada. That’s a big reason why Crusoe invested heavily in the area.
“At points in not-that-distant history, the basin was flaring almost up to a fifth of the gas that was being produced there,” said Cavness.
Thorstenson said the amount of wasted natural gas is finally trending lower. In a March report, North Dakota’s Department of Natural Resources estimated that currently 93% to 94% of natural gas is being captured. In 2014, the commission had a capture goal of 74%.
Drillers have historically chosen flaring as a way to dispose of excess gas because it’s less damaging to the environment than venting, which releases methane directly into the air and produces greenhouse effects that have proven to be 84 to 86 times as powerful as CO2 over a 20-year period.
Even with flaring, some methane does escape due to wind and other factors. On-site bitcoin mining can be especially impactful, because 100% of the methane is combusted and none of it leaks or vents into the air, according to Adam Ortolf, who runs business development in the U.S. for Upstream Data, a company that manufactures and supplies portable mining solutions for oil and gas facilities.
“Nobody will run it through a generator unless they can make money, because generators cost money to acquire and maintain,” Ortolf said. “So unless it’s economically sustainable, producers won’t internally combust the gas.”
Crusoe’s systems are built to make the process financially viable for drillers. The company brings its equipment onto the oil pad, allowing it to convert otherwise wasted natural gas into electricity, which then powers computing at the well site.
“When we put it through our generator, we get up to 99.9% combustion of that methane,” Cavness said. “Not only are we using the otherwise wasted energy, we’re also significantly reducing methane emissions.”
Cavness said his main takeaway from the United Nations’ latest global climate summit in Glasgow, Scotland, was that methane is the low-hanging fruit.
“That’s the thing we want to solve as an energy industry,” he said.
