The Texas Oil Field

In the Permian Basin of West Texas, the problem is simple and old. Oil extraction produces natural gas. Without pipeline access, that gas gets burned off at the wellhead. Regulators have cracked down on flaring but pipeline construction is slow. In the meantime, the gas burns.

In 2021, a small Bitcoin mining company approached Permian Basin operators with a proposal.

They would place a containerised mining unit — a shipping container filled with Bitcoin mining computers — at the wellhead. A generator would burn the gas to produce electricity. The electricity would run the miners. The operator would get a cut of the mining revenue. The mining company would get near-zero electricity costs.

The numbers worked.

The oil operator stopped paying for flaring compliance equipment and started receiving a small monthly revenue share. The mining company got electricity at a fraction of normal market rates. The gas that had been burning uselessly now produced Bitcoin — and produced less methane in the process, since generator combustion is more complete than open flaring.

By 2023, multiple companies operated this model across dozens of oil fields in Texas, North Dakota, and Wyoming. The total capacity wasn’t large in global terms. But the model demonstrated something important about Bitcoin mining’s relationship with wasted energy.

Bitcoin created an economic market for energy with no other buyer. Not through environmental policy or green subsidy — through pure profit motive. The outcome was better for the environment because it was better for the balance sheet.

Tomorrow: how Bitcoin miners help stabilise electrical grids.

— The Daily Bit