Oil and gas giant will arrive on August 28, 2020 Equinor announced that it would reduce its future flare gas volumes and bring waste gas to the market by generating electricity and mining on the Bitcoin network. Equinor’s plans include a partnership with Denver-based company Crusoe Energy Systems – Digital Flaring Technology.
Five months before the announcement of Equinor (on March 5, 2020), Greenidge Generation LLC, a natural gas plant in Dresden, New York, announced that it could make $ 50,000 a day from its excess energy if it were to mine bitcoin. Greenidge Generation installed 7,000 bitcoin miners and improved facilities to maximize the amount of natural gas energy it could bring to the market.
Both stories were Bitcoin industry rattling news of their announcements, especially for those of us who paid close attention to the energy industry. The fact that these massive and established energy companies are investing in bitcoin mining establishes a profound truth: bitcoin mining is a serious and emerging energy demand market that will change the ways energy producers allocate resources in the future. Some of these producers are even sovereign nations – both Iran and Venezuela have announced the nationalization of the mining of the bitcoin network.
The potential for stranded natural gas in Bitcoin mining
An important part of the energy sector is the energy generation sector. These are commonly known as natural gas, coal-fired power plants, etc. While these massive facilities exist mainly to power cities and towns, there is another facet of this market that is not seen as often. 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 (particularly the US and Canada), there are companies looking to capitalize on the increasing demand for consistent and resilient power, even in remote areas.
This energy demand can come from manufacturers with automated production facilities where the primary operating costs are electricity, or remote agricultural infrastructure that requires off-grid electrical power. It’s safe to say there is no shortage of demand for resilient and economical electricity, but it was rarely economical to provide power generation remotely – until bitcoin mining took off.
Natural gas that cannot be accessed by conventional means due to a lack of pipeline infrastructure can be compressed and used to generate electricity, significantly reducing energy costs.
However, there are other factors to consider when generating electricity in rural areas, especially with stranded natural gas as a source. One of the most important is the need for modular infrastructure. It is not economical to invest in the construction of permanent infrastructure. After all, when the natural gas source becomes exhausted, permanent infrastructure is a sunk cost item. In addition, if power generation is merely a means of reducing costs (rather than increasing revenues by selling that power at a discount to the grid), how long will it take for the cost savings to have a positive effect? of the total investment for building a modular power plant? Often times, the discount isn’t worth the infrastructure cost unless it is compounded by a revenue stream – ultimately, it’s not 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 marketed by generating electricity, powering ASICs, and contributing computation to the Bitcoin network.
So the question is: is it economical to build a modular natural gas power station?
Yes, but profitability traditionally depends only on complicated financing and cheap debt, rather than the value of the electricity supplied. But this equation shifts and any investment in building power generation infrastructure becomes more economical due to the emerging energy demand market known as the Bitcoin network.
Of course, due to the required modularization of power generation, the amount of power produced is typically lower than that of an established power plant built into an old energy infrastructure, likely to support a large population. These ‘natural gas power plants on wheels’ can still produce a considerable amount of electricity – over 25 megawatts. Now it is more economical for companies to build this modular infrastructure and use it to provide cheaper power for a variety of purposes that all have the same cause: a lack of access to pipeline infrastructure, as well as reliable and economical electricity.
So, how does bitcoin mining change something?
Well, any time there is surplus electricity for those who provide power remotely (electricity that goes beyond demand that cannot be stored), they might as well use that to power up some Antminers, calculating the bitcoin- network and be paid in bitcoin equal to the contributed work.
Certainly, the fact that bitcoin can become a reserve asset of corporations’ coffers is huge news – don’t get me wrong. However, I believe that the implications caused by bitcoin (and bitcoin mining) entering the financial sector pale in comparison to the implications resulting from BTC’s entry into the global energy production industry.
But much like PayPal’s industry shake announcement, Square’s following, MicroStrategy’s following, the same question exists in the energy production industry: when / who will be next to announce an integration of bitcoin mining into their business model?
Over the years I have assembled a network of serious and driven individuals in both the upstream energy industry and bitcoin mining. These things happen.
Keep your ears to the ground. Innovation is always within reach.
This is a guest post from Adam Ortloff. The views expressed are entirely its own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.