Episode 178: Cryptocurrency and Climate Change with Crusoe Energy's CEO, Chase Lochmiller

Today's guest is Chase Lochmiller, Co-Founder & CEO of Crusoe Energy. Crusoe is on a mission to eliminate routine flaring of natural gas and reduce the cost of cloud computing.

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Which is the problem Crusoe Energy is focusing on?

It's called flaring. Flaring results when oil companies drill oil wells, oil is the primary product that they're, you know, looking to get, and they produce natural gases of byproduct to that production. And, when they don't have midstream infrastructure, they basically transport that gas to a downstream market where it can be sold and consumed. What they're left with is their next best option is either to vent it or flare it. Venting is terrible for the environment. Methane's an incredibly potent greenhouse gas. It traps 84 times more heat in the atmosphere than CO2. And flaring it, they also end up venting quite a bit of the gas as well, just because flares don't fully combust the methane.

Flaring meaning set it on fire?

Exactly. It's just a big flaming fireball out in the middle of the oilfield. If you look at the EIA website, you can see the history of flaring. It's not a new problem. It's existed since we've been producing oil and gas. To me, it's low-hanging fruit in the energy transition. So you have initiatives like the World Bank has the initiative to end routine flaring by 2030, and it's been signed on by, you know, many different, large, global oil companies. But the reality is there aren't great solutions for it. It's a tough problem to solve in an economic capacity. And what Crusoe's solution was, instead of having them flare that gas or vent that gas, we're able to capture it onsite, and then co-locate data cells alongside the oil and gas production. And then, utilize that gas onsite to generate power, to power these mobile modular datasets for high-performance computing and digital currency mining, uh, applications.

So, putting aside the emission footprint and the harm for the collective good on the planet, what are the advantages and disadvantages of flaring versus venting for these oil and gas companies?

Flaring is better than venting but it's still not a super-effective way to deal with a natural resource. It's almost a tragedy that the quantity of gas that's being flared globally is not being captured for any sort of beneficial use. So, you know, putting some numbers in perspective here, globally, we flare about 14 1/2 billion cubic feet a day of natural gas. Domestically, here in the United States, we're about 10% of that. So, about 1.4 billion cubic feet a day. Fourteen and a half billion cubic feet a day from a power perspective could generate about 65 gigawatts hour, basically power Africa. So, really substantial global waste that's occurring. I mean, it's creating a large climate impact, alongside being an incredible waste of that natural resource.

Can you talk a bit about the process of taking this flared natural gas and using it to power these data centers? And also, what's special or differentiated about it, relative to anyone else that might go and see your success and try to follow suit?

We generally set up onsite that all of our equipment is designed to mean mobile and modular, so we have individual data centers that we ship to the site. And then, we have power generation equipment that we ship to site as well. They basically have a gas line that feeds into this big flare stack, which is just this big tower; it's this giant fireball sitting on top of it. And we've got a bunch of photos and videos kind of on our website. A few years ago, having never spent time in an oil field, like seeing this firsthand, I was like, "Holy cow! This is insane." Seeing it happen, like driving around to the Willinston Basin in North Dakota, and just kind of seeing how prevalent it was, just kind of everywhere, which was kind of, uh, shocking.

We take a tee-off of that pipeline that feeds their flare line, and then the gas sort of feeds into our system. And then, we use that gas to generate power. In doing that with gas engines that we use, we do what's called stoichiometric combustion, which means they're getting the right air-to-fuel ratio to fully combust the methane. So, we end up getting a, you know, 99.99% combustion efficiency with the methane, as opposed to, you know, something closer to, you know, 90 to 93% of the methane getting combusted in a flare. That methane savings is actually a massive reduction in CO2 equivalent for the actual climate impact of flaring compared to the usage of digital flare emission. Putting it in perspective, one of those systems, on an annual basis, is a net reduction of 8,000 tons of CO2 equivalent per year.

By using the flared natural gas, it is getting consumed by the data center rather than released into the sky?

You end up getting full combustion of the methane. It's like air from a climate impact standpoint. It's not too dissimilar from something like biogas, that's emitted from cattle or livestock. If you're able to capture that and combust it, it's actually a massive environmental improvement compared to just letting cows belch, fart, into the atmosphere directly. 

What kind of scale are we talking about in terms of how much that natural gas is being utilized?

We have about 60 units deployed today. The bulk of that footprint is across Willinston Basin, in the North Dakota. So, we look at flaring as a problem. You know, it's kind of, domestically, the North Dakota-Montana area called the Willinston Basin. That's kind of one of the biggest, you know, flaring areas in the country, as well as West Texas. It is called the Permian Basin. That's the other major flaring market in the US. We're mostly deployed up in that North Dakota-Montana region. And we also have operations in Wyoming and Colorado. And we're planning to expand into the Permian later this year. Secondarily, a lot of the technology that we've deployed is useful in other capacities that are not a waste methane recoveries set-up.

So, we actually have a big project that we're working on in the wind energy space, where we're able to actually co-locate data centers alongside a very large-scale wind farm. And, in doing so, we provide this buyer a last resort, and that helps wind energy companies underwrite the development of more and new projects that helps accelerate the transition to a more renewably powered grid. The real problem there is this asynchronicity that you have between how renewables generate power and how humans consume power.

Wind turbines are going to generate power kind of when the wind is blowing. Humans are going to consume power when they get hot and they want to turn on their A/C or when they get home and they want to charge their EV or, you know, turn on their TV. Those two things aren't necessarily always in sync. You have this sort of problem that wind farms often don't have a marginal buyer, an electron that's being generated, which is why you're seeing, at times, negative power pricing in markets like the ERCOT in Texas. But then, you also have this problem where you actually don't have enough deployed capacity to meet sort of the peak demand. So, we saw this happen earlier this year when, you know, there's a big freeze in Texas or when it got very hot this summer, we saw power pricing spike up to $9,000 a megawatt hour. This is a very crazy price for consumers to pay for power. And part of that is there's wasn't enough capacity deployed onto the grid. So, by being able to create a flexible interruptible load, you can actually create an opportunity to accelerate the development of more projects and more renewable power to power a grid like ERCOT.

Why do you think that bitcoin gets such a bad rap from the climate world?

I think there's a couple of different reasons. I think one is that people argue that bitcoin mining is not creating any real utility because they don't find value in bitcoin. But there are millions of people around the globe or hundreds of millions of people around the globe that do find utility in bitcoin. So, it's tough to make the argument that bitcoin has no value when there's literally a market price today that you can go buy and exchange bitcoin for dollars for.

I just want to make sure I understand. So, today, bitcoin consumes a lot of energy. Is the message that it adds so much value that the energy is worth it? Or is the message more that it does add value, yes, but that there's also a path for that energy or emissions footprint to be reduced over time? If the latter, then what does that look like?

I think it's both. So, I think the sign of a thriving society is the ability to generate and consume energy. You look at the acceleration of human quality of life. Acceleration of the improvement of human quality of life that's happened over the last 150 years, largely in part, is driven by our ability to harness energy and natural resources. The future of that is going to be driven by our ability to harness renewable sources of energy, like create a sustainable way for us to benefit from, you know, the positive impact of being able to generate and, and harness, you know, large-scale energy sources.

Now, what I view, from a bitcoin standpoint, is one, it's to spend on energy is worth it because it creates security for a non-essentially managed, digital monetary asset, which I think is a very useful thing for society at large. And there are hundreds of millions of people around the world that most tend to agree with that. But, secondarily, I think that the incentive system of the bitcoin protocol is such that if we can harness it in the right way, can actually help accelerate more renewable energy development and a faster transition to a more renewably powered grid. And it can also help be a net emissions reducer for the fossil fuel industry.

On the energy side, what are the criteria that are the same if you look at flared natural gas and wind? And are those set criteria that you would look at for any other expansion path of other energy sources you might utilize over time? 

Each power source is inherently different. We have a whole process that we go through. It's like an environmental approval process for any project that we're going to do. And the criteria for that, particularly working with oil and gas companies is, is this a net reduction in emissions compared to what would happen without Crusoe being? And if the answer is yes, we'll do the project. If the answer is no, we're not going to do the project.

And the reason for that is that it can be a slippery slope working with some of these operators and trying to be true to that core ESG mission, you know, that we really have as a business because we've been approached by a number of operators that have stranded gas fields. They have gas balls that they've drilled that gases the product they're trying to monetize. And, you know, they're not monetizing it because maybe they don't like the gas prices, maybe they don't like their cost to connect into the grid, or whatever. But their interest is basically utilizing that gas to mind bitcoin with and monetize it. In that case, in that specific scenario, we would not do that project because that gas, otherwise, would just stay in the ground, which is what we think is probably the best use for it, otherwise.

In the case of flare mitigation, what we're doing is we're identifying sites that would otherwise be flaring, and we bring our technology onsite to be a net reduction in that emissions footprint, which I think is a... It's nuanced but it's really, really important to our longterm mission here as a company. So, that's kind of like the criteria that we look for on the fire gas projects we evaluate. On the renewable side, you know, we've looked at a bunch of different types of projects, and wind is going to be the first of this type. They all kind of have a similar flavor and a similar theme. And it depends on if it's an intermittent source like wind or solar, or if it's a base-load source like, you know, geothermal or hydro, the way in which we kind of work with them can be somewhat different.

In the case of these stranded wind projects, what we're really looking for is either wind assets that have been overbuilt, that lack transmission to kind of get out of a certain zone or a certain region. Or areas that are just overbuilt for a large portion of the time, in which case, like the effective power price that the wind operator's getting, in many different cases, is actually a negative price. They're actually paying to get rid of marginal electrons because there's literally no buyer for them. But there are these moments of peak demand, where we can actually curtail our workload and help them sort of monetize the wind asset, and help the grid be more stable with entirely renewably powered energy. 

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