Bitcoin Emerges in Texas Gas Wells

Written by: Bob Henderson, WSJ

Compiled by: Cat Brother, Wu Says Blockchain

The significant fluctuations in natural gas prices have severely impacted gas mining companies. Chris Alfano believes the solution lies in something more volatile: Bitcoin.

The 29-year-old recently led a group of seasoned oil and gas industry professionals through pipelines and wellfields outside Fort Worth, Texas, past two massive orange generators, and finally to a gleaming white structure about the size of a tractor trailer. Alfano's company, 360 Mining, mines Bitcoin here, using the electricity generated from the natural gas produced by the oil wells.

Alfano's pitch to these potential clients is that they can mine cryptocurrency by burning a thousand cubic feet of natural gas to earn $10 or more, instead of selling it for $1.50 or less. He shouted over the roar of the generators, "This is mining in the Bitcoin space."

This is an expensive bet on a risky asset. Building a gas-powered mining operation costs at least a million dollars, and Bitcoin is notoriously volatile. But natural gas prices have dropped to about half of what they were a year ago, primarily due to last year's mild winter suppressing demand.

The fact that oil and gas producers are considering Bitcoin mining illustrates how desperate they are for solutions, even unconventional ones.

The goal is not to replace natural gas with Bitcoin, but to use it as a balancing factor. When natural gas prices rise, mining companies sell it. When natural gas prices fall, they can burn it to power energy-intensive computers that generate vast amounts of random numbers to create newly minted cryptocurrency.

For Alfano, the logic is simple. He calls himself a "spreadsheet expert" and built his own gas-powered Bitcoin mine during the COVID-19 pandemic. But the seasoned oil and gas experts are somewhat baffled by this cryptocurrency world.

Using their own natural gas would minimize the primary expense of Bitcoin mining: electricity. But their income will fluctuate with Bitcoin prices, which have ranged between about $3,000 and $60,000 over the past five years. Their returns will also be threatened by competition. New miners entering the fray and old miners upgrading their machines could reduce the amount of Bitcoin they earn.

Despite the risks, some producers are willing to take a chance. Todd Hallmark, 37, manages the family-owned Bob Hughes Oil Company, named after his grandfather. Until last year, Hallmark had no interest in cryptocurrency. But the operator of the gas pipeline serving 14 oil wells in Eldorado, Texas, significantly raised rates, making it more profitable for Hallmark to burn it than to sell it.

Hallmark considers himself capable, having worked on oil drilling rigs since he was eight. But he still hired Alfano to help him set up a Bitcoin mine. He couldn't imagine doing it alone. "We're a small oil and gas company," he said. "We're not computer experts."

Alfano never aspired to be the Bitcoin Johnny Appleseed of the oil fields. He grew up in Manhattan Beach, California, with a father who was a car dealer and a mother who was a homemaker. He studied finance and economics at Southern Methodist University and, like many others, was drawn to Bitcoin during the COVID-19 pandemic when the value of cryptocurrency soared. He was amazed by the profits that could be made by "just plugging in a computer."

At the time, Alfano lived in Austin, married to his college sweetheart, and had two young daughters. Mining was something he could do on his own. This autonomy reminded him of a business he ran in high school, where he scoured for cheap used surfboards and then sold them for a profit on Craigslist.

Texas has abundant natural gas, and owning his own oil wells would give him more control over his fate. These assets would also reassure the investors he needed and allow him to sell natural gas if Bitcoin prices collapsed. He thought it would be easy. But it wasn't.

In October 2021, when Bitcoin was trading at about $60,000, Alfano raised $6 million from investors. He shut down the plant outside Fort Worth, purchased hundreds of high-end computers, installed state-of-the-art liquid cooling systems, and rented seven generators to power the setup. Mining began in February 2022.

But things did not go as planned. The generators kept shutting down. The servers malfunctioned. The cooling system failed to cool. Over the next four months, Bitcoin fell to $30,000 in May and to $20,000 in June. At that point, Alfano concluded that his mine's design had a fatal flaw. He shut down the mine and began selling his natural gas.

However, just as the "easy" profits evaporated, Russia invaded Ukraine. Natural gas prices skyrocketed from about $3.50 at the beginning of the year to over $9 per thousand cubic feet.

This bought him time. Alfano redesigned and rebuilt his mine. In March of this year, as natural gas prices collapsed and Bitcoin began to rebound, he was ready to restart mining. Today, Alfano uses his initial failure as a selling point.

One of the lessons he learned is that you can't just connect a well to a generator powering the mine. They need a stable fuel supply. To provide such a supply, Alfano installed two rocket-shaped tanks to regulate the fuel flow between the well and the generator. "There were a lot of sleepless nights," he told a recent tour group, "we lost a lot of money before we installed these things."

Veterans of the oil and gas industry remain skeptical but have not completely dismissed Alfano's claims.

Bobby Flournoy, 75, president of Energy Investment Partners in Dallas, an oil and gas exploration and production company, said, "I just don't understand how you can buy something and call it a coin, but it never falls into anyone's hands. To me, there’s no product being produced here."

Sandy Pofahl, 82, who has been developing the oil and gas industry since the 1980s, expressed similar doubts about cryptocurrency. However, after visiting Alfano's mine, he is considering organizing a team to connect some of his wells to the mine.

"I don't know if this is real," he said when talking about Bitcoin. "But it's been around. It's been around for a long time, and it does go up and down, but it goes up three and down two, and that's been going on for a long time. In short, it has stuck around."