Colorado county shuts down crypto operations at oil and gas sites
To the untrained eye, the nondescript boxes and containers scattered around some oil and gas wells in Colorado look a lot like the equipment typically found at a well pad — boxy, utilitarian and industrial.
But inside these particular containers, a kind of otherwordly magic is happening.
Dozens of high-powered computers quietly crunch complex math problems in an act of cryptocurrency “mining,” whereby virtual currencies like 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 math 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 pulled up from the ground — gas that often has nowhere else to go but into the atmosphere.
In Adams County, this novel mashup of old-school legacy fossil-fuel extraction and futuristic digital-currency creation is a bit too new — at least for now.
County officials in May issued a cease-and-desist order, saying the arrangement — “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 that it claims has not complied with its order to shut down crypto mining operations in the oil patch. Adams County, according to community and economic development director Jenni Hall, first needs to create rules around the practice before allowing it to resume.
“These are remote areas with a lot of dry grassland around them,” Hall said. “We also know they are running generators, which have emissions and make noise.”
Adams County, she said, simply doesn’t have language in its land use code that speaks to cryptocurrency mining 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.
Proponents of the practice say it’s a win-win for both the environment and the crypto industry. Bitcoin mining typically occurs at a well where natural gas is an unwanted byproduct 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 electric 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 potent greenhouse gas that’s more than 25 times as effective as carbon dioxide at trapping heat in the atmosphere, according to the Environmental Protection Agency.
Cryptocurrency has long been decried as a contributor to global warming because of its intense usage of electric power. Tesla CEO Elon Musk made headlines last year when he stopped accepting bitcoin for electric vehicles because of its environmental impacts.
And last month, the New York Times reported that the New York state legislature passed a last-minute bill that imposes a two-year pause on new cryptocurrency mining permits, specifically at fossil-fuel burning plants, which some businesses have repurposed to power the energy-intensive activity.
But capturing gas that is produced as a result of oil drilling but has no way to get to market is different, said Cully Cavness, president of Denver-based Crusoe Energy Systems.
“There’s this large wasted energy source and there’s the demand for electricity from the data center industry,” Cavness said. “Bringing these two things together is an elegant solution.”
Crusoe runs systems like the ones recently shut down in Adams County, using stranded gas at well pads to power computers that crunch cryptocurrency and develop artificial intelligence. The company doesn’t have any operations in Adams County but does use its patented “Digital Flare Mitigation” technology in Jackson County in northcentral Colorado.
Crusoe boasts that its technology helps reduce emissions of carbon dioxide by 63%, methane by 98% and volatile organic compounds by 100% compared to flaring gas in the field. The company just expanded last month with the purchase of Easter-Owens Electric Co.
“You could power all data centers 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 pioneered the technology in 2018 — it has spread to half a dozen Colorado counties, according to the Colorado Oil and Gas Conservation Commission. Those are Jackson, Adams, Weld, Fremont, Lincoln and Rio Blanco.
COGCC spokeswoman Megan Castle said the agency has “had conversations” with six oil and gas operators about the practice but couldn’t say how many wells in Colorado might be involved with bitcoin mining overall. State regulations, she said, must be met first before a system can go into operation.
“Operators are required to update their site plan with the COGCC if they introduce new equipment that substantially changes the location,” she said. “Also, operators must file a gas capture plan if the operator changes the disposition of the gas.”
But knowing who’s engaged in the activity is a challenge for regulators. In Colorado’s epicenter of energy production, Weld County, Jason Maxey said he wasn’t aware of anyone mining bitcoin at any of the 18,000 active well sites in the county despite the state’s determination that it’s happening there.
“It has raised the awareness at our end that we might need to have a conversation with these people,” said Maxey, director of the Weld County Oil and Gas Energy Department.
He gets that it’s ecologically preferable to more cleanly burn natural gas in a generator than to flare it at the wellhead, Maxey said, but the county still needs to make sure it’s being done in accordance with its land use rules, oil and gas regulations and building codes.
“Does there need to be a computer tech — or two or three computer techs — going out there every day?” he said, noting traffic in the oil field as one concern. “Do they know how to conduct themselves out there?”
Ed Ingve, owner of Aurora-based Renegade Oil and Gas Co., said he got into crypto mining as a side hustle after Anadarko Petroleum closed 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 purchased by Occidental Petroleum in 2019.
“All these legacy wells had the rug pulled out from under them,” Ingve said. “I was trying 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 mine crypto after he was ordered not to do so in the spring.
Ingve admits that a contractor he was doing business with had failed to stop cryptocurrency operations at his Adams County wells but that he has since disassembled the data center and the generators. But he’s not done mining bitcoin.
Swinging open 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 of 30 or so crypto mining computers stacked on shelves — a tangle of electric cords snaking in all directions. There are no monitors or keyboards on these machines, just hard drives with blinking lights.
Another silver generator, smaller than the size of an SUV, holds another 30 computers. A cell tower sends all data being processed at the well to a bitcoin network that then sorts everything out.
The site is in a vast field east of the metro area. Ingve asked that its specific location not be made public.
“As you can see, it’s rather innocuous,” said Ingve, who has been in the oil and gas business for more than 30 years.
But if this mining operation gets halted as well, so would oil extraction because of restrictions the state has put on flaring excess gas at the well pad.
“I’d have to shut it down,” he said.
The crypto crash
What happens next with the emerging field of wellhead bitcoin mining in Colorado depends on a lot of things, the least of which is the value of cryptocurrency itself. Last month, the value of a single bitcoin plummeted below $20,000 after having eclipsed $67,000 — a peak — in November.
It settled at just over $20,000 last week.
It also matters how aggressively the state regulates emissions from oil and gas wells going forward. In December, the Colorado Air Quality Control Commission approved rules to keep the industry on track to meet state-mandated reductions in emissions to cut pollution and address the effects of climate change.
The rules target emissions of methane and the pollutants that form ground-level ozone, which creates the haze along the Front Range. Specifically, the industry needs to cut emissions by at least 26% by 2025 and 60% by 2030, based on 2005 levels, according to the new rules.
The Colorado Oil and Gas Association, the trade group for the industry, said the state shouldn’t be an impediment to efforts to mine bitcoin at the well site. It could be a “new economic development engine, particularly in more rural areas of the state,” said the organization’s president, Dan Haley.
“Any potential regulation of this activity needs to consider its benefits to the environment and the economy, and the reality that the future is plugged in,” he said. “Whether it’s an e-bike, an electric vehicle or crypto-mining, the world needs power and energy and we’re seeing in real-time on a global stage why we need to use our local resources to the fullest extent possible.”
And in Adams County’s oil fields, economic development director Hall said she hopes the county can come up with rules for crypto mining before the end of 2022. The first step is a study session with county commissioners at the end of August.
“It’s an innovation but you have to do it in a way that’s safe,” she said.