Meet the company mining bitcoin using the flare gas from oil drilling – and drawing investment from Coinbase and the Winklevii

Bitcoin mining flare gas
One of Crusoe Energy’s flare-mitigation centres in Montana.

  • Crusoe Energy captures the energy from flare gas at oil patches and uses it to “mine” bitcoin.
  • The company is now one of the US’s biggest miners and has attracted investment from Coinbase.
  • The crypto world is increasingly focused on the climate, particularly after Elon Musk’s criticisms.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

Hunter Lowe, a 27-year-old electrician from Tennessee, was working for around $10 an hour in his home state and supporting a family of three when he decided to move to North Dakota and look for a new job.

He never expected to end up working in the bitcoin business.

But Lowe is now an electrician at Crusoe Energy, a company that captures the flare gas from oil patches and uses the energy to “mine” for bitcoin. It says its systems slash CO2-equivalent emissions from gas flaring by up to 63% and that each one has the equivalent effect of taking around 1,700 cars off the road.

Lowe describes it as “the best job I’ve ever had,” which pays “way more than fair.” And he says business has been good during 2021’s crypto boom. “We’re getting busier and busier every time another company finds out about us,” he told Insider.

Crusoe isn’t the only company in the business, with others including EZ Blockchain doing similar things. Yet it’s one of the biggest, and has attracted investment from the listed crypto exchange Coinbase and the Winklevii twins‘ Winklevoss Capital.

Crusoe mines bitcoin directly on site

So how does it work? When oil companies drill for the black stuff, they often hit natural gas too. Yet, most drillers lack the infrastructure to sell the gas and so burn it off in a process called flaring, creating the distinctive flames above oil sites.

This is where Crusoe comes in. It installs a piping system to divert the natural gas away from the flares and into generators. They produce electricity which is then used to power computers directly at the oil site.

The computers “mine” bitcoin – that is, they solve complex puzzles which help to secure the bitcoin network and create new coins. One bitcoin was worth around $39,000 on Thursday.

“We pay the operator for the gas that we use in our generators, providing them with an incremental revenue stream where they were previously flaring the gas for zero,” Crusoe’s president Cully Cavness told Insider.

He said Crusoe, which has deployed units in North Dakota, Colorado, and Montana among other states, is now one of the biggest bitcoin miners in North America.

The focus on bitcoin’s energy use has intensified

Yet, for some people, paying oil companies for their byproducts is simply propping up the fossil fuels industry. Others argue that bitcoin is socially useless and there are much better uses for energy.

New York University economist Nouriel Roubini has slammed cryptocurrencies as pointless and inefficient, for instance, saying that “the Flintstones had a better monetary system.”

Elon Musk, once the most prominent bitcoin evangelist, has halted payments for Tesla cars in the token and attacked its “insane” energy use. Bank of America analysts have estimated that each $1 billion of inflows into bitcoin uses the same amount of energy as 1.2 million cars.

Yet, Cavness says Crusoe “maintains an internal [environmental] standard to select projects only if they’re net reducers of greenhouse gasses.”

He also said Crusoe’s prices are such that “we don’t create an economic incentive to opt out of traditional midstream gas capture systems.”

And he says the company’s generators aren’t only focused on bitcoin, but are increasingly powering other energy-intensive processes such as cloud computing.

Investors are keen on the technology

Musk’s attacks on bitcoin’s energy consumption have shone a light on the issue and crypto companies are paying more attention to the climate than ever.

The green focus appears to be helping Crusoe, which recently raised $128 million to help expand its flare capture technology to more than 100 units, from around 40 currently. Investors included Valor Equity Partners, Bain Capital, and the Agnelli family’s Exor.

As someone who’s worked for Halliburton and natural gas companies, Lowe admits he was skeptical about “the whole green thing” in the past. Being at Crusoe has changed his mind, however, and he argues its work is “definitely for the better.”

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Why some Texas residents are ending up with $5,000 electric bills after the winter storms

texas weather
A vehicles drives on snow and sleet covered roads February 15, 2021, in Spring, Texas.

Texas residents who endured days without power during last week’s winter storms are facing a new obstacle: Electricity bills over $5,000 for just a few days of energy.

Some customers of state-owned electric grid are seeing the eye-popping, five-figure power bills because their plans are tied to the wholesale market rate. In the Dallas-Fort Worth area, residents have been hit with $1,000 per day charges for electricity, The Dallas Morning News reported. Residents have taken to social media to show $5,000 bills – or more – over a period of about five days.

CPS Energy, the electric utility in San Antonio, said some consumers can expect “exorbitant” bills in the coming weeks, KSAT reported. The utility might try to minimize the hit by spreading the charges over a period of up to 10 years, the news station said. 

Texas Governor Greg Abbott met with local lawmakers Saturday to address the latest crisis. “We are moving quickly to alleviate this problem and will continue to work collaboratively throughout this week on solutions to help Texas families and ensure they do not get stuck with skyrocketing energy bills,” Abbott said in a statement.

Spiking bills won’t hit state residents who had fixed-rate electric plans. The problem for many comes from index or variable rate plans, in which rates to power their home or business change with the price in the wholesale market. In good times, a customer’s bill can be lower – but if the price of electricity skyrockets, so too do bills.

Last Monday, as freezing weather rolled through Texas and the southeastern US, the wholesale price of electricity shot up 10,000%. It went from about $50 per megawatt hour to $9,000 – a system cap, according to data provided by the Electric Reliability Council of Texas, the grid’s operator. 

The price increase came as sources of electricity, like natural-gas plants, went offline in the freezing temperatures. Meantime, the unusually cold weather for a mostly temperate state meant demand for energy went up, as people turned up their heaters to stay warm.

ERCOT responded with rolling blackouts, it said, so as not to further damage the grid. The blackout, which affected a few million residents at its peak, is among the largest in US history.

President Joe Biden on Saturday declared a major disaster in Texas.

ERCOT did not immediately respond to Insider’s request for comment about the wholesale electricity price and reports of spiking consumer bills. 

It’s unclear how many Texas residents have variable or index-rate electric plans. Texans are allowed to shop for their power plans in its deregulated retail electricity market.

Griddy, one of the state’s electric companies, provides access to wholesale electricity for a monthly membership. Last week, it urged its nearly 30,000 customers to switch energy providers if they couldn’t afford the soaring rates, The Dallas Morning News reported. 

Some state lawmakers think some residents might not understand how their electricity is billed. 

“The state needs to look into whether or not people are signing up for things that they don’t really understand and signing up for things that could ultimately really hurt them,” Houston Democratic Rep. Gene Wu said, according to The Dallas Morning News.

On Sunday, power had been restored across much of Texas, though many people remain without water after pipes froze and burst. Damages from the storm, which left dozens dead, is expected to approach $50 billion, AccuWeather predicted. 

Abbott has called the blackout event “unacceptable” and said he would add the reform of ERCOT as an emergency item for the 2021 legislative session.

The Federal Energy Regulatory Commission has also launched a task force to investigate the outages in Texas and elsewhere in the US.

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Blame the wind? In Texas, fossil fuels have actually played a larger role in leaving millions without power

GettyImages 1231190260
Pedestrians walk on along a snow-covered street on February 15, 2021 in Austin, Texas.

  • Freezing cold temperatures have caused severe power outages in Texas.
  • A majority of lost generation has been from fossil fuels, not wind.
  • But the main factor is not the source of electricity, but the extreme weather.
  • Visit the Business section of Insider for more stories.

It’s a popular claim and a powerful image, attracting the attention of conservatives and headline writers of all political persuasions: frozen wind turbines are to blame for Texans losing power and icicles forming their homes during this week’s shocking cold spell.

There are a number of reasons why, as of Tuesday evening, more than 3 million Texas were without power. The simplest explanation is that the extreme cold has spurred an unprecedented demand for heat, outstripping the state’s ability to provide.

According to the Electric Reliability Council of Texas, which manages 75% of the state’s deregulated electricity market, the previous record for demand, set in 2018, was smashed on Valentine’s Day. And as the weather has gotten worse, the capacity to generate electricity has diminished: By Tuesday, per ERCOT’s CEO, 45,000 megawatts of generating capacity was offline – up from 34,000 megawatts offline the day before, representing more than half of what the state typically uses in a day.

Most of the generation lost has been from coal and gas, according to ERCOT, with only 13% attributable to wind. “By some estimates,” The Texas Tribune reported Tuesday, “nearly half of the state’s natural gas production has screeched to a halt.”

“Gathering lines freeze, and the wells get so cold that they can’t produce,” Parker Fawcett, a natural gas analyst at S&P Global Platts, told the Tribune. “And, pumps use electricity, so they’re not even able to lift that gas and liquid, because there’s no power to produce.”

Texas is unique: It does, by far, generate the most electricity from wind of any state – three times as much as liberal California. It is also energy-independent, its electricity grid almost entirely disconnected from the rest of the country, a move that insulates it from federal regulation and has also left it hanging now, in this moment of need, with so much of its own power generation frozen and offline.

Despite its greater than typical reliance on wind, Texas’ chief source of electricity is not renewable. Indeed, a majority, 52%, comes from natural gas, according to the US Energy Information Administration, while less than a quarter comes from renewables like wind and solar.

And fossil fuels have been affected by the weather too.

As of Tuesday morning, distributor Texas Gas Service warned consumers, “our suppliers of natural gas are experiencing freezing gas wells due to the duration of the extreme cold.”

It is also simply the case that, whatever the fault of regulators and local politicians, Texas is a victim of a cold spell like it hasn’t seen in decades.

A 2016 risk assessment from the US Department of Energy, detailing electricity outages between 1992 and 2009, says 18 were caused by thunderstorms and eight by heatwaves. It doesn’t list freezing temperatures.

Have a news tip? Email this reporter: cdavis@insider.com

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US oil and natural gas prices rise as freezing temperatures leave millions without power in Texas

GettyImages 1231190311
Temperatures have plunged in Texas, causing energy prices to spike

US oil and natural gas prices rose on Tuesday, as freezing cold weather battered Texas’s energy infrastructure, leaving millions without power.

WTI crude oil was up 0.52% to $59.77 per barrel as of 6.10am ET. That was just off a more than one-year high of more than $60.80 touched on Monday as plunging temperatures hit Texan oil plants.

Natural gas futures were up 5.8% to $3.079 per million British thermal units on Tuesday, trading at around the highest levels since November.

More than 3 million people have been left without power in Texas and close to 5 million around the US as a whole, according to poweroutage.us, as a rare winter storm sweeps the country.

Temperatures fell to 4F (-16C) overnight in Dallas, Texas, and have plunged across Oklahoma, Kansas, New Mexico, Colorado and elsewhere.

It has been challenging for Texas’s energy grid, which does not pay generators to keep capacity in reserve. The weather has forced many generators to stop production.

Read More: EXCLUSIVE: An asset manager overseeing nearly $100 billion divested from Exxon on concerns it is failing to move fast enough to address climate change

Wholesale energy prices have skyrocketed, at times above the market cap of $9,000 per megawatt hour, compared to prices of around $25 to $50 per MWh before the winter storms.

The frigid temperatures have hit oil production and natural gas supplies and led to a surge in demand for energy, causing prices to spike.

Heating oil futures – a proxy for diesel – were up 2.58% to $1.817 per gallon on Tuesday morning. Gasoline futures were up 4.11% to $1.7621 a gallon.

Texas is also home to some of the country’s biggest oil refineries, as well as the heart of the shale basin. 

Jeffrey Halley, senior market analyst at currency firm Oanda, said he thought the US oil market had been due a correction after a surge in prices in recent weeks. But he said the current weather situation “will likely continue to offset that.”

Read More: GOLDMAN SACHS: These 40 heavily shorted stocks could be the next GameStop if retail traders target them – and the group has already nearly doubled over the past 3 months

“Until the weather moderates in the United States… oil is a ‘buy on dips’ in the short-term.”

Brent crude oil, the international benchmark, was down 0.33% to $63.11 a barrel, still around a one-year high.

JPMorgan last week predicted a commodities “supercycle” would take hold in 2021, as economies reopen and drive up production and demand for energy.

The “roaring 20s” will be accompanied by easy monetary and fiscal policy, a weak US dollar and stronger inflation, all supportive for commodity prices, JPMorgan said.

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