Diving deeper into flare gas mining
Not all flaring is the same. Let’s go beyond a simple gas flare -> Bitcoin mine calculation and look at the technical & economic challenges of various types of gas. This is the first in a series on the topic from the perspective of oil & gas natives.
You’ve probably heard about mining as a method of reducing natural gas flaring in the oilfield. A few small operations pioneered the approach as early as 2016, and now the idea is several years into proof of concept at various scales & in various states. (Nico Smid from The Bitcoin Mining Block Post has a solid overview written about a month ago)
The Whitehouse recently released a report titled: “Climate and Energy Implications of Crypto-Assets in the United States” that caused a stir in the mining community. It isn’t particularly detailed but provides a surprisingly clear-eyed evaluation of the potential of mining off flare gas:
“While the EPA and the Department of the Interior have proposed new rules to reduce methane for oil and natural gas operations, crypto-asset mining operations that capture vented methane to produce electricity can yield positive results for the climate, by converting the potent methane to CO2 during combustion. Mining operations that replace existing methane flares would not likely affect CO2 emissions, since this methane would otherwise be flared and converted to CO2. Mining operations, though, could potentially be more reliable and more efficient at converting methane to CO2.” – pg 24
I think they’ve properly identified flaring as a grey area for proponents of carbon offsets through mining. The whole proposition truly comes down to the nature of flaring and venting rather than any value proposition from Bitcoin.
The whole proposition [of flaring] really comes down to the nature of flaring and venting rather than any value proposition from Bitcoin.
One of the primary reasons a mine may or may not work on flared gas has to do with why the gas is being flared in the first place. Well operators typically do not flare gas is there’s any option to deliver it.
Here’s 6 common reasons why operators may flare gas from a well—
Temporary flaring at the start of production — often called “flowback”. May be used to handle gas removed from frac water. Gas production at this stage is often low, inconsistent volumes and the well will begin to “gas up” as the hydrostatic pressure of the frac water in the well is removed. These are poor candidates for mines since the flare will only be on site 1-45 days typically.
Emergency flaring during drilling or completions — It may be necessary to deal with gas influx from the reservoir before the production facilities are ready for use. With massive amounts of heavy equipment on location and high danger of fire, these situations are unlikely to ever see mining.
Gas quality may cause an operator to flare gas — Natural gas is a conglomeration of various molecules, most are hydrocarbons but some of which are classed as “waste gasses”. Common waste gasses include Nitrogen (N2), Carbon Dioxide (CO2), Hydrogen Sulfide (H2S), and (to a lesser extent) Helium (He). Nitrogen and Helium are rather inert but lower the value of the gas and will cause midstream pipeline companies to sometimes reject natural gas from a well, leaving it stranded. CO2 and H2S are far more corrosive and erode pipeline steel. H2S exposure can be fatal even at relatively low levels and can occur naturally in a reservoir or be induced by human error if drilling and completion water isn’t treated properly with a biocide to prevent surface bacteria from entering the reservoir. Bitcoin mining ultimately has a future here, but it will take significant technological revisions to consistently produce energy without causing environmental damage.
Gas can become temporarily stranded if downstream facilities are shut in or have an emergency. This could be regular plant maintenance or a plugged line. Many modern wells have small flares that rarely run as a contingency plan for these instances. Small volumes may be flared until wells can be shut in or pipeline pathways can be rerouted so that there are no pipeline explosions from over-pressuring. Inconsistency makes these flares poor targets.
Spatially stranded gas is an excellent target for mining — Crusoe pioneered this approach in North Dakota with oilfields that couldn’t connect to markets because they lacked economic viability or couldn’t surpass regulatory hurdles. These long-term flaring situations are genuinely wasteful and both the operator and miner significantly benefit from the synergy even before the environment comes into consideration. The catch is that these wells are almost entirely oil wells and changes in oil commodity markets can cause operators to cease production even if the mine is still profitable. More than one miner has found that out the hard way.
Economically stranded gas — (what Nakamotor primarily targets) This is gas that has historically been produced into a pipeline and is forced into flaring for economic or regulatory reasons not tied to the presence of pipelines. With increased regulatory burdens on pipelines, many midstream operators are electing to shut in old lines, even filling them with cement in some circumstances. This kills the market for all the wells connected to the pipeline and forces operators to find alternative outlets for gas, often resulting in the temporary flares coming into constant use. Alternatively, midstream companies may try to pass on regulatory and repair costs, resulting in untenable fees for gas where the well operator may pay for takeaway capacity. Flaring ends up being an economic path of least resistance for these wells.
Let’s examine the feasibility of each type —
Venting is another nuance, as gas escaping produced oil may evaporate from tanks and other surface equipment. This may go through a Vapor Recover Unit (VRU)or may be left unmeasured and unflared. Many tanks do not have pressure measurement and it can be hard to calculate how much gas is even available from vented sources.
The final component to stress is the proximity of wells. Depending on the field and whether wells are horizontal or vertical, it may be difficult to collect enough volume for a generator. Connecting stranded volumes may have regulatory and economic hurdles even with the well-intentioned plans of reducing energy waste. High prices for pipe and labor make collecting 5-10 wells into a single point source for a mine largely impractical and miners have been forced to evaluate individual well sites on the whole.
Bitcoin mining has and will reduce flaring and venting and help bring the oilfield into a more ecologically-focused future, but it is not a one size fits all solution.
Bitcoin mining has and will reduce flaring and venting and help bring the oilfield into a more ecologically-focused future, but it is not a one size fits all solution. It will take a measured practical review on a case-by-case basis to know if a mine is viable. Right now, there are plenty of opportunities as acceptance of off-grid/remote mining grows. The jury is still out on the ultimate impact of mining off flare gas though. Maybe it will have staying power and significant impact, maybe we will find that our continental-level statistics were a bit irrationally exuberant.
Kyle Drew, Operations, Nakamotor
Nakamotor is working on a series of research pieces on this topic, examining the mining viability of flares, orphaned wells, and producing fields in North America.