As part of our Bitcoin is an energy solution, not an energy problem mini-series, I will be dedicating this one to mining bitcoin with flared gas. Since the demand for oil is not going away anytime soon, there is a massive opportunity to harness one of the largest energy byproducts in the world and convert it into bitcoin. Here’s how I see one of the world’s next massive digital gold rushes taking place.

What Is Flared Gas?

Flared gas is a byproduct of extracting oil from the ground. Oil wells produce oil as the primary product but they also produce a byproduct; natural gas which is mostly methane. If this gas is just released into the atmosphere, it is much worse for the environment than if it were to be burned off. This burned gas is called flared gas.

You have probably seen flared gas if you have ever driven by an oil well or refinery and a torch seems to be burning for what seems like no reason. It’s actually being burnt for a reason.

Why Do They Flare Gas Anyway?

There are a number of reasons why they flare gas. They can extend from releasing excess pressure from an oil well to testing the flow and mixture of natural gas in a well. The most common reason why gas is flared is to reduce the environmental impact of a well and avoid being fined by governments. I tend to think that the latter is the main reason.

You might be asking “Why not collect the gas and sell it to consumers to heat homes or run gas stoves or something?”

That’s a great question but the answer may not be so obvious to those who don’t understand the economics of the energy industry. Depending on the local infrastructure, it actually has both a greater financial and environmental cost to trap the gas than to just burn it off.

How Can We Harness The Power Of Flared Gas?

Since natural gas is valuable, oil companies would rather capture the gas and sell it to reduce operating costs or even increase profits but capturing gas doesn’t come without its own set of challenges. Often times oil wells are in remote parts of the world where there is no infrastructure to collect the gas. The hard part is how to capture the gas in an efficient and environmentally feasible manner.

Imaging spending $10 worth of resources to produce a $5 product. It simply does not make sense. It’s actually worse than that because it also would create 10 units of pollution to reduce pollution by 5 units. These numbers are figurative (not actual) to help you to understand why it doesn’t make sense to capture all flared gas.

Since flared gas is already considered waste, it makes sense that we would look for ways to turn that waste into something useful for society. Instead of further investing in fossil fuel infrastructure to harness and use that gas, it makes more sense to find ways to convert that into something of value at the well’s flare site.

I believe that bitcoin mining is the solution.

Mining Bitcoin with Flared Gas

This is where the interesting part begins. To turn that surplus energy into bitcoin, you need to convert the gas into electricity via a natural gas generator. Once you have electricity at your oil well, what do you do with it? The next step is to run bitcoin miners with what is essentially free electricity (minus the cost of the natural gas generator and your bitcoin miners.) Since some oil wells produce a LOT of oil you are potentially talking about tens of millions of dollars of free energy that is otherwise going to be wasted. Talk about “money to burn”.

”Free” Electricity

According to a report from the Environmental Defense Fund (EDF), in 2017, nearly $322 million dollars of natural gas was flared in the Permian basin of Texas alone. That seems like a REALLY big number to an individual like you and me but in the multi-billion dollar oil industry, that’s pocket change. Imagine being able to mine bitcoin with $322 million worth of free electricity. Again, that was just in ONE region, in ONE state, in ONE country, in ONE year. Think of the global amount of energy that is being wasted each year as gas flare. It’s likely well into the BILLIONS.

Flaring Fines

There is also a political benefit of mining bitcoin with flared gas. I’m talking about flaring fines imposed by local and state governments. Oil wells can’t just flare as much and as long as they want. There are often heavy fines for flaring as well as fines for not complying. If oil companies could utilize some of this waste, they could save big on flaring fines. Combined with reducing overhead from the mined bitcoins, that’s a nice double-edged sword to stay profitable in an incredibly competitive industry.

How Do I Mine Bitcoin with Flared Gas?

How do I mine bitcoin with flared gas? This is going to be a multimillion dollar question in the next decade. As soon as oil companies realize that they can convert this excess gas into money with little to no infrastructure as well as avoid flaring fees from local and state governments, there will be a new mining arms race to see who establish the most efficient flared gas bitcoin mines.

Currently, there are only a handful of companies who have the foresight to jump on this new gold mine of opportunity but that will change. As soon as someone starts to make absurd gainz with little risk, the competition will heat up. Here are the companies that I was able to find after a pretty substantial amount of Googling.

Upstream Data

Upstream Data, based in Canada, sees this waste of flared gas as an opportunity to turn wasted energy into bitcoin. They already offer a mining skid that is basically a 20-foot shipping container with a natural gas generator and a remote internet connection pre-installed. If you have an oil well in a colder climate that is producing lots of natural gas, then you just need to add some bitcoin miners and start turning that natural gas into bitcoin.

When a well runs dry, you can just move the shipping container to your next well and start all over again. No need to run expensive pipelines or invest any further in fossil fuel infrastructure.

Final Thoughts

I personally believe that finding ways to harness waste is going to be one of the next waves of innovation in bitcoin. Instead of looking for ways to purchase electricity from the energy grid, we will instead be looking for opportunities to convert wasted energy into useable energy via bitcoin mining. It does nothing but make mathematical sense for both energy producers and energy consumers alike to turn waste into something useful, reduce overhead and keep the bitcoin network secure.