Methane Reduction Profitable Bitcoin Story – Bitcoin Magazine
This is an opinion piece by Robert Warren, Partner in Distributed Hash and Business Development at Upstream Data Inc.
This is the story of a father and son team who began their journey in search of cheap energy, but found themselves at one of the biggest sources of waste energy in the industry. The natural gas industry has found itself a perfect partner in bitcoin mining, and Adam Ortolf of Stranded Energy Investments has the mine to prove it.
In a true entrepreneur story, Adam Ortolf of Colorado (AKA @DenverBitcoin) went from managing a printing plant on the Front Range to standing up for a stranded natural gas bitcoin mine, and now helping grow Upstream Data Inc. into the industry provider it is today.
In 2017, Ortolf managed a UPS store on the Colorado Front Range. One particularly busy afternoon, a patient client noticed his work ethic and offered him a position at his oil and gas accounting firm. Ortolf knew nothing about oil and gas and was skeptical of the offer, but after some consideration decided to join the small team that helped facilitate production accounting and management of oil wells.
It was there that Ortolf developed a feel for the oil field from the hundreds of pages of production documentation he would sift through to produce reports for. His mentor, Rick, took the time to sit him down and chalk out everything from planning to production in the oil field, “He taught me how to drill a well, everything from drilling to casing to perforating…I began to understand the economics of oil and gas. At this point I didn’t even have a deep understanding of bitcoin.”
“I learned oil and gas accounting and reporting just by doing it,” says Ortolf. “Gas can have a million different little variables. Maybe you flare some of the gas, sell some of the gas, and maybe some of the gas is going here to a generator that runs a light and the Internet. How do you calculate that every month? ” By scrutinizing the numbers, Ortolf developed an intuition for well rig operations. “I started to notice when the numbers would be wrong,” he says.
It was in the numbers that Ortolf began to see how the patchwork of monitoring and legal requirements surrounding natural gas underreported the amount of gas that was produced and often dumped at the facilities.
“I learned what people actually do at the well site because I reported all the important information … in the United States right now what is reported and this is an important difference, what is reported is not real. That is what you pay taxes on and that you get paid for, but what’s not accounted for is gas lines that pop, leaks, venting. If you’re required to report it, you have to estimate, and if you’re going to be fined, you estimate low,” Ortolf said.
With that caveat in mind, it is often reported that about a billion cubic feet of natural gas is vented or flared daily, most of it coming from Texas. But because Texas is more permissive of venting and flaring, these estimated numbers are considered artificially high compared to other oil-producing states. When venting or flaring is heavily regulated or fined in a state, producers are encouraged to underreport what happens at the well site.
Some rough estimates say that twice as much gas is vented or flared than is reported. This is enough energy to double the current bitcoin hash rate (about 200 exahash with wasted power at the moment).
The possibility of natural gas waste
With his eyes open to the vast amounts of natural gas being wasted or lost every day, Ortolf found himself juxtaposing two different universes – Bitcoin and oil and gas.
“There was an article about the mining death spiral. That term fascinated me then. Now when you understand mining, it’s just FUD (Fear, Uncertainty and Doubt). It’s a market function. But as a naive person, I thought Bitcoin was just another internet – money fraud.”
To understand energy, Ortolf wanted to understand how this magical internet money scam actually worked. He thought, “I bet you guys pulling the strings are the miners. I bet I can figure out how they do it. So I went to learn about mining to find out how these guys were scamming everyone.”
After researching the Bitcoin protocol and how mining worked in the system, Ortolf came to an unexpected conclusion: “Holy shit, you can’t rig this game, nobody can cheat this game – you can’t cheat a kWh.”
That’s where the connection between the often stranded, wasted or undiscovered energy he worked with every day merged with bitcoin mining, “I understood energy, I understood oil and gas. I understood at this point that natural gas powers a significant percentage of the world, and that much of it is wasted … the way of producing this [bitcoin] is to generate electricity, and that is a very low barrier.”
If miners on the Bitcoin network used this massive amount of lost natural gas, you would have a cost-effective and environmentally positive way to finance the operation.
Ortolf explained: “We can sequester and dampen it [waste gas] in an economic way, in a way that is actually profitable and reduces air emissions. Suddenly you don’t need foundations to donate to save the planet, this is a self-sustaining way to reduce waste.”
He investigated to see who else had made this connection. With little progress after weeks of hunting, he set up a Google alert for “flare gas extraction” and combed through the results. One day the recommended answer from Google sent back the name “Upstream Data”.
Ortolf navigated to the website, “Finally I was reading things I had only thought about… As much as today it’s a no brainer, back then it didn’t feel like such a thing. At the time I felt a little crazy, like I might dreaming here.”
Upstream data connection
Ortolf immediately arranged a meeting with his business partner (the father) and Upstream Data. After a few hours on the first phone call with CEO Steve Barbour discussing the oil field and bitcoin mining, Stranded Energy Investments decided to invest in an off-grid bitcoin mining operation through Upstream Data, what is now called a Hash Combo.
What Ortolf said he loved about Upstream Data was the customer-oriented nature of the business. Instead of the many get-rich-quick companies that have come and gone in this area over the years, “This guy tried to build a 50-year-old gas company,” Ortolf says, “This company is going to be one of the best oil and gas companies of the century, he [Steve] has the vision and leadership skills to manage it.”
The upstream building consisted of a 50kW generator that powered the old generation Antminer S9. Ortolf and his father first invested in the building, generator and ASICs, and used Upstream Data’s engine maintenance services to keep the plant running on a Canadian well. In total, they generated approximately 400 terahash on an engine consuming ~15 MCF of natural gas per day. This came out to about $40/day at a hash price of $0.10.
But even with operations running on cheap gas, they were hit by a stagnation in hashish prices and an increase in mining difficulties. It was the rainy season in China, and miners feasted on the abundance of hydropower produced. Ortolf explained how he and his father asked themselves, saying: “How is it possible that we have the cheapest power in the world and that we are being squeezed? And then, boom—the rainy season ends in China, a lot of hash rate shuts off, then bitcoin starts trickling back up…it happened quickly, bitcoin cost forty-five thousand dollars and it was like we bought it for eleven.”
From these experiences, Ortolf continued his advocacy, consulting with oil and gas companies and energy producers to discuss the use of stranded or wasted energy for productive purposes. Because of his experiences with Upstream Data Inc., he continued to send customers to them to build, “It was the only place I knew to send people,” adds Ortolf.
In a final twist of fate, just as his oil and gas mentor, Rick, noticed Ortolf’s efforts at the print shop, Steve Barbour could see the passion Ortolf brought to his consultation. Steve called Ortolf and offered him a position on the Upstream Data team in business development. So today when you contact Upstream Data to set up your first operation, you may have the opportunity to chat with Ortolf about his experiences setting up the first mine in the oil field.
This is a guest post by Rob Warren. Opinions expressed are entirely their own and do not necessarily reflect the opinions of BTC Inc Bitcoin Magazine.
