Colorado County closes crypto operations on oil and gas facilities

To the untrained eye, the indescribable boxes and containers scattered around some oil and gas wells in Colorado look a lot like the equipment usually found on a well cushion – boxy, utilitarian and industrial.

But inside these special containers, a kind of magic happens in other words.

Dozens of powerful computers are quietly crushing complex mathematical problems in a “mining” of cryptocurrency, where virtual currencies such as bitcoin are created and added to a kind of worldwide cryptocurrency ledger. A bitcoin miner is essentially in a race with others to solve these mathematical problems – and the winner gets bitcoins as a prize for their efforts.

The mobile data center on wheels is powered by a generator that whips up electricity using natural gas drawn up from the ground – gas that often has nowhere else to go but into the atmosphere.

In Adams County, this new blend of old-fashioned fossil fuel extraction and futuristic digital currency creation is a little too new – at least for now.

County governors in May issued a cease-and-desist order, saying the event – “a trailer full of computers powered directly by a producing well” – is unlike any land use Adams County has seen before.

The county followed up last week with a lawsuit against an oil and gas producer who it claims has not complied with the order to close down crypto mining in the oil patch. Adams County, according to Social and Economic Development Director Jenni Hall, must first make rules about the practice before it can be resumed.

“These are remote areas with a lot of dry grassland around them,” Hall said. “We also know that they run generators, which have emissions and noise.”

Adams County, she said, simply does not have a language in the land use code that speaks to the mining of cryptocurrency at the wellhead. 9News was the first to report on the situation.

“We were all just surprised,” Hall said, referring to the moment this spring when an oil and gas inspector discovered crypto operations in full swing at four well sites in the county.

Supporters of the practice say that it is a win-win for both the environment and the crypto industry. Bitcoin mining usually takes place at a well where natural gas is an unwanted by-product of oil extraction – known in the industry as “stranded gas” – and in remote locations where there is no pipeline to bring the gas to market.

By capturing the gas and using it to power cryptocurrency mining computers, which draw enormous amounts of electrical power, the process diverts excess methane from being released or vented into the air or from being flared at the well site. Methane is a powerful greenhouse gas that is more than 25 times as efficient as carbon dioxide in trapping heat in the atmosphere, according to the Environmental Protection Agency.

Cryptocurrency has long been condemned as a contributor to global warming due to its intense use of electric power. Tesla CEO Elon Musk made headlines last year when he stopped accepting bitcoin for electric vehicles due to the environmental impact.

And last month, the New York Times reported that the New York state legislature passed a last-minute bill imposing a two-year hiatus on new permits for mining cryptocurrencies, especially at fossil fuel burning facilities, which some businesses have used to conduct energy-intensive activity.

But capturing gas produced as a result of oil drilling but having no way to reach the market is different, said Cully Cavness, president of Denver-based Crusoe Energy Systems.

“It’s this big wasted energy source, and it’s the demand for electricity from the data center industry,” Cavness said. “Bringing these two things together is an elegant solution.”

Crusoe runs systems such as those recently shut down in Adams County, using stranded gas at well cushions to power computers that shatter cryptocurrencies and develop artificial intelligence. The company has no operations in Adams County, but uses its patented “Digital Flare Mitigation” technology in Jackson County, northern Colorado.

Crusoe boasts that the technology helps reduce carbon dioxide emissions by 63%, methane by 98% and volatile organic compounds by 100% compared to flaring gas in the field. The company expanded just last month with the acquisition of Easter-Owens Electric Co.

“You can run any data center globally with all this wasted gas,” Cavness said.

“Trying to be creative”

While bitcoin mining at the wellhead is a relatively new phenomenon – Crusoe says it was groundbreaking for the technology in 2018 – it has spread to half a dozen Colorado counties, according to the Colorado Oil and Gas Conservation Commission. These are Jackson, Adams, Weld, Fremont, Lincoln and Rio Blanco.

COGCC spokeswoman Megan Castle said the agency has “had talks” with six oil and gas operators about the practice, but could not say how many wells in Colorado may be involved in bitcoin mining overall. Government regulations, she said, must be met first before a system can be put into operation.

“Operators are required to update their site plan with the COGCC if they introduce new equipment that significantly changes the location,” she said. “Operators must also submit a gas capture plan if the operator changes the disposition of the gas.”

But knowing who is involved in the activity is a challenge for regulators. In Colorado’s epicenter of energy production, Weld County, Jason Maxey said he was not aware that anyone had mined bitcoin at any of the county’s 18,000 active wells despite the state’s determination to do so.

“It has raised awareness at our end that we may need to have a conversation with these people,” said Maxey, director of the Weld County Oil and Gas Energy Department.

He understands that it is ecological to prefer to burn natural gas cleaner in a generator than to flare it at the wellhead, said Maxey, but the county must still ensure that it is done in accordance with land use rules, oil and gas regulations and building regulations.

“Does it need to be a computer technician – or two or three computer technicians – who goes out there every day?” he said, noting traffic in the oil field as a concern. “Do they know how to behave out there?”

Ed Ingve, owner of Aurora-based Renegade Oil and Gas Co., said he came into crypto mining as a by-product after Anadarko Petroleum shut down miles of natural gas pipelines in northern Colorado four years ago. The network, known as Third Creek, served dozens of smaller energy producers in Adams, Arapahoe, Denver and Elbert counties, providing a crucial link between wells and buyers.

Anadarko was acquired by Occidental Petroleum in 2019.

“All these old wells had the blanket pulled out from under them,” said Ingve. “I tried to be creative to produce enough to keep the doors open.”

And so he mined bitcoin at two of his Adams County wells, producing power with natural gas that he could no longer move to market. Last week, Ingve was sued by the county, which accused him of continuing to extract crypto after he was ordered not to do so this spring.

Ingve admits that a contractor he did business with had not managed to stop cryptocurrency operations at his Adams County wells, but that he has since dismantled the data center and generators. But he is not done extracting bitcoin.

By opening a door on a natural gas generator unit that runs around the clock, powered by gas coming from a nearby well he owns, Ingve reveals a bank with around 30 crypto mining computers stacked on shelves – a jumble of electrical wires winding in everything. directions. There are no monitors or keyboards on these machines, only hard drives with flashing lights.

Another silver generator, smaller than the size of an SUV, has room for another 30 computers. A mobile tower sends all the data processed at the well to a bitcoin network which then sorts everything out.

The area is located in a large field east of the metro area. Ingve requested that its specific location not be made public.

– As you can see, it is quite harmless, said Ingve, who has been in the oil and gas industry for more than 30 years.

However, if this mining operation is also stopped, oil extraction will also be put on hold due to restrictions on the flaring of excess gas at the well cushion.

“I had to close it,” he said.

Cryptocracy

What happens next with the new field of wellhead bitcoin mining in Colorado depends on many things, the least of which is the value of the cryptocurrency itself. Last month, the value of a single bitcoin fell below $ 20,000 after exceeding $ 67,000 – a peak – in November.

It dropped to just over $ 20,000 last week.

It also matters how offensively the state regulates emissions from oil and gas wells in the future. In December, the Colorado Air Quality Control Commission approved rules to keep the industry on track to meet state-mandated emissions reductions to cut pollution and address the effects of climate change.

The rules are aimed at methane emissions and the pollutants that form ground level ozone, which creates haze along the Front Range. Specifically, industry must cut emissions by at least 26% by 2025 and 60% by 2030, based on 2005 levels, according to the new rules.