The rapid emergence and popularity of cryptocurrency has led to some novel, and admittedly controversial, energy solutions. One of those “win-win” solutions is to power crypto mining operations with natural gas that would otherwise be vented from oil and gas wells. Taken together, this approach creates significant new economic opportunities for firms. Yet, it carries significant environmental and fiscal dangers, in particular with orphaned wells and the long-term obligations that would fall to taxpayers. This article will unpack these risks, examine the economic incentives at play, and shed light on the clear need for more robust regulatory supervision.

The Environmental Fallout: A Ticking Time Bomb

Burying crypto mining operations under defunct gas wells can create a range of other environmental issues. Air quality pollution is a primary concern. In addition to direct PM2.5 impacts, mining operations near abandoned gas wells can increase PM2.5 emissions. This increase in emissions puts the health of surrounding communities at risk. The air, noise, and light pollution that accompanies these operations can further destroy local ecosystems and adversely affect nearby residents.

Additionally, crypto mining further harms the environment through its heavy dependence on fossil fuels, creating even more greenhouse gas emissions and worsening climate change. According to data from 2020-2021, 67% of the electricity used for Bitcoin mining was generated from fossil energy sources. Crypto mining has a major water footprint. In 2020-2021, it jumped to a shocking worldwide high of 1.65 km³. Restoration of unreclaimed abandoned gas wells can be incredibly damaging to land use and wildlife habitat. It’s important that these harmful sites are restored once mining stops to avoid future ecological devastation.

The most concerning feature of this practice is the creation of orphaned wells. The status of oil reserves within the United States is extremely fluid. Most of these wells are almost completely drained and abandoned to private owners with little to no means to adequately cap these wells and manage any subsequent remediation work. This lack of accountability puts taxpayers at risk of having to pay for these environmental hazards.

Financial Risks and Taxpayer Burden

The cost risks for gas well-powered crypto mining are enormous. Inadequate bonding requirements are a major issue. Bonds to pay for cleanup are often inadequate. In reality, they only represent an average of 1.6% of the real costs to plug and remediate a well. Cleanup costs can be anywhere from tens of thousands to millions of dollars per well, based on their location and state of repair.

This persistent shortfall further increases the financial burden on American taxpayers. As a result, they frequently find themselves on the hook for the expense of cleaning up nonproductive wells. The Bipartisan Infrastructure Law provided $4.7 billion for orphaned well remediation. Yet, this funding is woefully inadequate relative to the enormous expense of plugging millions of current and future orphaned wells.

As crypto mining continues to grow at a breakneck speed, the existing regulatory structure can’t seem to catch up. It’s a reality regulators traditionally don’t have the manpower to enforce infractions against, particularly in rural states. Yet oversight can be very piecemeal, often needing directions from various agencies that don’t always have the best lines of communication. Sometimes companies fail to adequately outline their plans to regulators in the first place. Sometimes permits are issued that don’t hold up to scrutiny or are not enforced. The environmental concerns are substantial. Second, crypto mining operations require massive amounts of water for cooling purposes. This practice can severely impact drought-prone regions and increase greenhouse gas emissions, as it represents an estimated 0.4% to 0.8% of the nation’s total greenhouse gas emissions.

Economic Incentives and the Allure of Stranded Gas

Despite the environmental and financial risks, there are clear economic incentives for companies like Diversified Energy to engage in gas well-powered crypto mining. Diversified Energy owns and operates a large portfolio of low-risk, mature, producing assets. They may have a direct line to stranded gas that existing technologies are unable to economically transport or market. By directly using this gas to power crypto mining, they can create entirely new revenue streams.

Here are several ways how companies are incentivized to use stranded gas:

  • Monetization of low-value gas: Crypto mining can provide a new market for low-value or flare gas that would otherwise be wasted.
  • Increased cash flow: Crypto mining can provide a new source of cash flow, which can be used to fund operations, reduce debt, or invest in new projects.
  • Diversification of revenue streams: By engaging in crypto mining, companies can diversify their revenue streams and reduce their dependence on traditional fossil fuel markets.
  • Reduced emissions: By using gas that would otherwise be flared or vented, crypto mining can help reduce greenhouse gas emissions and provide a more environmentally friendly use for this gas.

Crypto mining provides a unique opportunity to make money with this stranded gas, transforming an asset liability. This practice increases available cash flow and helps to diversify revenue streams. It can avoid emissions by using gas that would otherwise be flared or vented.

The Path Forward: Regulation and Enforcement

To avoid the dangers posed by crypto mining that operates on gas wells, more stringent regulatory scrutiny and enforcement is needed. I’m not sure the existing regulations are enough to meet the specific challenges this industry presents.

While the intersection of crypto mining and legacy energy infrastructure has upside potential, it’s a huge gamble to take. It’s no wonder—companies have a clear economic incentive to use stranded gas. Let’s be clear – we can’t ignore the environmental degradation and financial obligations that will be left on the backs of taxpayers. We require an equally proactive approach to make sure this innovative dynamic energy solution doesn’t instead become an expensive environmental liability. Strong regulations, good and sweeping enforcement, and transparent communication will get us there. The future of crypto mining in regions like Pennsylvania depends on striking a balance between economic development and responsible environmental stewardship.

  1. Updated Regulations: Regulations need to be updated to address the unique challenges posed by the crypto mining industry.
  2. Increased Oversight: Regulators need more resources to properly monitor infractions, especially in rural areas.
  3. Improved Communication: Better communication between regulatory agencies is needed to ensure comprehensive oversight.
  4. Permitting and Compliance: Companies must clearly communicate their plans to regulators, and permits must be properly issued and enforced.
  5. Mitigation Measures: Regulations are needed to mitigate noise pollution and other community disruptions caused by crypto mining operations.

The intersection of crypto mining and legacy energy infrastructure presents both opportunities and challenges. While the economic incentives for companies to utilize stranded gas are evident, the potential for environmental damage and financial liabilities for taxpayers cannot be ignored. A proactive approach, characterized by robust regulation, diligent enforcement, and clear communication, is necessary to ensure that this innovative energy solution does not become a costly environmental burden. The future of crypto mining in regions like Pennsylvania depends on striking a balance between economic development and responsible environmental stewardship.