NATURAL GAS HAS BEEN A STAPLE OF THE UNITED STATES ENERGY mix since the 1820s when the first natural gas well was drilled by William Hart in Fredonia, New York.Today, U.S. natural gas production is averaging over 100 bcf per day and represents 30% of all energy consumed. Over the past decade, the supply of natural gas has rapidly increased, but demand has not kept up. This supply and demand paradigm is one of the main reasons why natural gas prices are at their lowest levels in over a decade
Moreover, the regulatory environment amid the oil and gas industry paints a similarly bleak picture. TheInflation Reduction Act’s methane penalties, the Biden administration’s pause on LNG export projects and the EPA’s new methane penalty proposal are just a few of the many regulatory headwinds besetting the industry. With oil prices maintaining high levels, these issues will only be exacerbated further as associated gas volumes in theU.S. continue to grow. Associated gas in the Permian, for example, is triple its 2018 levels. More natural gas requires more pipelines, but takeaway capacity in the Permian and other parts of the United States continues to fall short. This will result in further environmental strain with an expected uptick in flaring, venting and shutting wells in.
Up until now, there have been no alternatives for natural gas producers and other industry participants. Low gas prices combined with a tightening regulatory regime is making business as usual all but impossible. Luckily, there is an alternative — one that earns higher realizations and that is actively reducing methane leaks to the atmosphere. Enter bitcoin mining.
In its simplest terms, bitcoin mining is a new market for energy that can be deployed anywhere energy exists. For natural gas producers, bitcoin mining is a new market for natural gas that converts one commodity, natural gas, into anew commodity, bitcoin.
This market for natural gas can be deployed anywhere natural gas is flowing, typically pad sites or gathering facilities. This market is also modular, reasonably portable and entirely self-sufficient, with its main components being a generator, data center and internet connection. These unique properties unlock unprecedented opportunity when it comes to gas monetization. That is, it can be deployed anywhere and can easily scale up or down to accommodate operations of all sizes.
Although the physical footprint of a bitcoin mine is small, the impact it provides to natural gas producers is substantial. Bitcoin mining with natural gas can help producers:
Like any commodity market, the profitability of bitcoin mining fluctuates every day, with the most important determining factor being the price of bitcoin. Figure 7 shows how bitcoin mining with natural gas has performed relative to Henry Hub over the past five years.
As the graph shows, mining bitcoin with natural gas hasconsistently earned more than the price of Henry Hub. By consuming natural gas in a bitcoin mine, natural gasproducers can capture outsized realizations on their gas.An additional benefit to this market is that it settles daily inU.S. dollars, which is a noteworthy improvement over themonthslong wait in traditional midstream arrangements.In today’s market, where many natural gas producers arestruggling to breakeven, bitcoin mining can be used totransform uneconomic assets to top performers.
Stranded gas is often a result of takeaway constraints oran unreliable party downstream of the well. Flaring, venting and shutting in are the most common actions taken by producers when it comes to stranded gas. With bitcoin mining, flaring and venting of natural gas can be eliminated once and for all. Because this market is modular, it can be deployed wherever natural gas exists, without the need for miles of pipelines, right of way negotiations and disgruntled landowners. This provides oil and gas producers with an environmental win as combustion through a clean-burning natural gas generator is far more efficient than the incomplete combustion of natural gas in a flare stack and certainly an improvement over venting natural gas to the atmosphere. Not only are producers reducing emissions, they are also able to turn a liability into a cash generating asset by monetizing natural gas that would have otherwise been wasted. In a world where stranded gas is being routed to off-grid bitcoin mines, the entire notion of“stranded gas” becomes a thing of the past.
Natural gas can be more of a burden. than anything for oil producers that wrestle with flaring permits, emission controls, takeaway capacity, pipeline delays, right of way issues, unreliable midstream partners, high line pressures and more. Across all of these examples, natural gas can be an inhibiting factor in oil production.By deploying this “digital pipeline” for natural gas, producers can take matters into their own hands and alleviate the bottlenecks that stifle their ability to produce more oil.Making more oil, reducing emissions and earning higher realizations on produced gas is a triple play that will change the landscape in traditional oil and gas. Bitcoin mining can also play a role in a new wave of wildcat oil drilling in fringe basins where pipelines cannot and will not reach.
Not all natural gas streams arecreated equal. Every well has differentproduction characteristics, gascontents, midstream agreements,surface use agreements and more.As you consider a natural gas bitcoinmine, you will want to ensure your natural gas stream is viable. Some ofthe key considerations are:
In summary, one thing is certain, oil and gas operators need to be aware of this transformative technology that can reshape how their wells are underwritten, executed and monetized. Onlookers outside the industry often hold the false pretense that the oil field is antiquated, stagnant and resistant to change. Any O&G professional can confirm that this notion couldn’t be further from the truth. The oil and gas industry is one of the most forward-thinking, innovative sectors of the modern world. It’s not a matter of if the next great innovation will be introduced, but when.
The 1920s ushered in the first iterations of seismic exploration, the 1990s brought us horizontal drilling and the 2010s ushered in IoT devices and sensors to enhance efficiency and safety. The 2020s are here and have brought bitcoin mining to the oil field, an innovation that is transforming the way gas is monetized. The reality that anew market exists for natural gas requires reimagining the way we think about natural gas. It is a paradigm-shifting concept that will further cement the fact that when it comes to innovation, the oil and gas industry continues to top the charts.
