Computers for bitcoin mining data centers...

Colorado County shuts down crypto operations at oil and gas sites

To the untrained eye, the nondescript boxes and containers scattered around some of the oil and gas wells in Colorado look a lot like the equipment typically found in a well pad—box, utilitarian, and industrial.

But within these particular containers, a kind of moral magic happens.

Dozens of high-powered computers are quietly solving complex math problems in the process of cryptocurrency “mining,” where virtual currencies like bitcoin are created and added to a kind of crypto-ledger around the world. The bitcoin miner is basically in a race with others to solve these mathematical problems – and the winner gets bitcoins as a reward for their efforts.

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

In Adams County, this new mix of old fossil fuel mining and futuristic digital currency creation is very new — at least for the time being.

County officials in May issued a cease-and-desist order, saying the arrangement — “a trailer filled with computers powered directly by a producing well” — is unlike any land use Adams County has seen before.

The boycott was followed last week by a lawsuit against an oil and gas producing company that claims it did not comply with its order to shut down oil patch crypto-mining operations. Adams County, according to Community and Economic Development Director Jenny Hall, first needs to establish rules around the practice before it is allowed to resume.

“These are remote areas surrounded by a lot of dry grasslands,” Hall said. “We also know that they run generators that have emissions and make noise.”

She said Adams County simply does not have language in its land use code that talks about mining cryptocurrency at the top of the well. 9News was the first to report the situation.

“We were all surprised,” Hall said, noting the moment an oil and gas inspector discovered cryptocurrencies in full swing at four well sites in the county this spring.

Proponents of this practice say that it is beneficial to both the environment and the crypto industry. Bitcoin mining typically takes place in 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.

Hyung Chang, Denver Post

Renegade Oil and Gas Co’s Bitcoin mining computers supply power from natural gas at a site in Elizabeth, Colorado. Friday, July 15, 2022.

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

Cryptocurrency has long been denounced as a contributor to global warming due to its extensive use of electrical energy. Tesla CEO Elon Musk made headlines last year when he stopped accepting bitcoin for electric cars due to their environmental impact.

And last month, the New York Times reported that the New York state legislature passed a last-minute bill that would impose a two-year moratorium on new mining permits for cryptocurrency, specifically at fossil fuel-burning plants, which some companies reused to power energy-intensive activity.

But Cole Cavens, president of Denver-based Crusoe Energy Systems, said that capturing gas that is produced as a result of oil drilling but no way to get to the market is different.

“There is a huge source of wasted energy and there is demand for electricity from the data center industry,” Cavins said. “Combining these two things is an elegant solution.”

Crusoe runs systems like the one that shut down recently in Adams County, using stranded gas in well rigs to power crypto-processing computers and develop artificial intelligence. The company does not have operations in Adams County but uses “digital flare mitigation” technology patented in Jackson County in northern Colorado.

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

“You can power all the data centers globally with all that wasted gas,” Cavins said.

An oil well provides natural gas...

Hyung Chang, Denver Post

An oil well providing natural gas for the location of Renegade Oil and Gas’s Bitcoin mining data center in Elizabeth, Colorado, Friday, July 15, 2022.

“Trying to be creative”

While wellhead bitcoin mining is a relatively new phenomenon — Crusoe says he pioneered 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.

Megan Castle, a spokeswoman for the Gulf Center for Reconstruction and Development, said the agency had “conversations” with six oil and gas operators about the practice, but could not say how many wells in Colorado might be involved in bitcoin mining in general. She said state regulations must first be met before the system becomes operational.

“Operators are required to update their site plan with COGCC if they introduce new equipment that significantly changes the site,” she said. “Also, operators must provide a gas capture plan if the operator changes the method of gas disposal.”

But knowing who was involved in the activity is a challenge for the organizers. At the Colorado Center for Energy Production, Weld County, Jason Maxi said he was unaware of anyone mining bitcoin at any of the county’s 18,000 active well sites despite the state’s determination that it would happen there.

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

Maxi said he understands that it’s environmentally better to burn natural gas more cleanly in the generator rather than flaring it at the wellhead, but the county still needs to make sure this is done in accordance with land use rules, oil and gas regulations and building numbers.

“Should there be a computer technology—or two or three computer technologies—that operates every day?” He said, citing oil field traffic as one source of concern. “Do they know how to behave there?”

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

Occidental Petroleum acquired Anadarko in 2019.

Ed Ingve of Renegade Oil and Gas Co. stands near a bitcoin mining data warehouse in Elizabeth, Colorado, on Friday, July 15, 2022.

Hyung Chang, Denver Post

Ed Ingve of Renegade Oil and Gas Co. stands near a bitcoin mining data warehouse in Elizabeth, Colorado, on Friday, July 15, 2022.

“All these old wells have been pulled out from under them,” Engvi said. “I was trying to get creative to produce enough to keep the doors open.”

He then mined bitcoins at two Adams County wells, producing a natural gas energy product that could no longer move to the market. Last week, the county filed a lawsuit against Engvi, which accused him of continuing to mine cryptocurrency after he was ordered not to do so in the spring.

Engvi admits that his contractor failed to stop crypto operations in Adams County wells, but he has since dismantled the data center and generators. But he hasn’t finished mining Bitcoin.

The door of a natural gas-generating unit that operates around the clock, powered by gas coming from a nearby well he owns, swings open, and Ingve reveals a bank of 30 or so crypto-mining machines stacked on shelves—a tangle of electrical wires intertwined in All directions. There are no screens or keyboards on these devices, just hard drives with flashing lights.

Another silver generator, smaller than the size of an SUV, holds another 30 computers. The cell tower sends all the data processed in the well to the Bitcoin network which then sorts everything out.

The site is located in a vast field east of the metro area. Engvi requested that her exact location not be announced.

“As you can see, it’s fairly harmless,” said Engvi, who has been in the oil and gas business for more than 30 years.

But if this mining operation is also stopped, the extraction of oil will also be halted due to the restrictions imposed by the state on burning excess gas in the well platform.

“I had to shut it down,” he said.

From the left, two bitcoin mining data...

Hyung Chang, Denver Post

From the left are two bitcoin mining data centers, a gas metering fund and a separator at the Renegade Oil and Gas Company site in Elizabeth, Colorado, Friday, July 15, 2022.

encryption crash

What happens next with the nascent field of Bitcoin mining wellheaded in Colorado depends on a lot of 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 hitting $67,000 – a peak – in November.

It settled at just over $20,000 last week.

It is also important how strongly the country will regulate 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 cuts to cut pollution and tackle the effects of climate change.

The rules target emissions of methane and the pollutants that make up the ground-level ozone layer, creating haze along the frontal 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.

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