Episode 178: Chase Lochmiller, Crusoe Energy
Today's guest is Chase Lochmiller, Co-Founder and CEO of Crusoe Energy.
Crusoe is on a mission to eliminate routine flaring of natural gas and reduce the cost of cloud computing. The startup repurposes otherwise wasted energy to fuel the growing demand for computational power in the expanding digital economy.
Chase is an avid tech enthusiast passionate about enabling new technologies like AI and blockchain to impact people's lives positively. Before founding Crusoe, Chase was a General Partner at Polychain Capital, a $1 billion fund investing in blockchain technologies, digital assets, and energy-intensive computing applications. Chase was previously a quantitative researcher and trader at Jump Trading and GETCO, where he developed and managed a portfolio of algorithmic trading strategies. Chase holds undergraduate degrees in math and physics from MIT and a master's degree in computer science from Stanford, specializing in artificial intelligence.
I was looking forward to this episode because cryptocurrency is a controversial topic in the climate space. Chase walks me through the problem of flaring for oil and gas companies and how Crusoe Energy came to be. We also have a lively discussion about the biggest blockers for cryptocurrency related to energy consumption, how the fossil fuels companies will exist in the clean energy future, and why powering data centers is a climate issue. This episode is a must-listen, and Chase is a fantastic guest.
Enjoy the show!
You can find me on twitter @jjacobs22 or @mcjpod and email at info@myclimatejourney.co, where I encourage you to share your feedback on episodes and suggestions for future topics or guests.
Episode recorded September 20th, 2021
In Today's episode we cover:
The problem Crusoe Energy focuses on
A discussion on what flaring is
The advantages and disadvantages of flaring versus venting for oil & gas companies
The origins of Crusoe Energy and what led Chase to found the startup
How Chase went from the idea stage of identifying a problem and to co-founding Crusoe
What motivates oil & gas companies to care about the issue of flaring
The process of flared natural gas being used to power data centers for bitcoin mining
The use cases for utilizing flared natural gas today and how to scale the technology
An overview of bitcoin mining and how it works
Why Chase thinks bitcoin has a bad reputation amongst the climate community
The various energy sources for powering bitcoin mining and why each source is vastly different
The biggest blockers to clean energy sources for cryptocurrency mining and computing more generally
Government's role in the clean energy transition and the regulations needed in the cryptocurrency space
Crusoe Energy's recent raise and where they focus from climate to energy to cryptocurrency
Links to topics discussed in this episode:
MCJ Collective's recent investment in Crusoe: https://myclimatejourney.substack.com/p/our-investment-in-crusoe-energy
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Jason Jacobs: Hey, everyone. Jason here. I am the My Climate Journey Show host. Before we get going, I wanted to take a minute and tell you about the My Climate Journey or MCJ, as we call it, membership option. Membership came to be because there were a bunch of people that were listening to the show that weren't just looking for education but they were longing for a peer group as well. So we set up a Slack community for those people that's now mushroomed into more than 1300 members. There is an application to because a member. It's not an exclusive thing. There's four criteria we screen for: determination to tackle the problem of climate change, ambition to work on the most impactful solution areas, optimism that we can make a dent and we're not wasting our time for trying, and a collaborative spirit. Beyond that, the more diversity, the better.
There's a bunch of great things that have come out of that community, a number of founding teams that have met in there, a number of nonprofits that have been established, a bunch of hiring that's been done, a bunch of companies that have raised capital in there, a bunch of funds that have gotten limited partners or investors for their funds in there, as well as a bunch of events and programming by members and for members, and some open-source projects that are getting actively worked on that hatched in there as well. At any rate, if you want to learn more, you can go to myclimatejourney.co, the website, and click To Become a Member tab at the top. Enjoy the show. Hello, everyone. This is Jason Jacobs, and welcome to My Climate Journey. This show follows My Journey to interview a wide range of guests to better understand and make sense of the formidable problem of climate change, and try to figure out how people like you and I can help.
Today's guest is Chase Lochmiller, Co-founder and CEO of Crusoe Energy. Crusoe is addressing the climate impact caused by flared natural gas by converting it into cheap electricity to power a range of data services. The company's beachhead application is powering cryptocurrency mining, specifically bitcoin and ethereum with electricity generated from methane emissions that would have otherwise been released to the atmosphere. Directionally, they've got plans to move into other forms of high-performance computing, and also into other sources beyond flared natural gas, such as wind.
We have a fascinating discussion in this episode about the Crusoe origin story, about Chase's path that led him, first down the cryptocurrency rabbit hole, and then at the intersection of cryptocurrency and flared natural gas. We talk about the origin story for the company: where they started, their progress todate, their long vision, and what to expect from them in the coming months and years. We also have a great discussion about clean energy in general: what it will take to decarbonize our global economy, where cryptocurrency fits into the picture and, specifically, Crusoe's vision for what role they can play to help.
Chase, welcome to the show.
Chase Lochmiller: Love to be here, Jason. Thanks for having me.
Jason Jacobs: Thanks for making the time. It's crazy because bitcoin and blockchain are just getting so much attention these days. And, of course, climate change is getting so much attention these days. And not only is Crusoe Energy focused kind of squarely at that intersection but I don't know anyone that's got more scale than you. So, super excited to have you on the show. And gosh, we sure have a lot to talk about.
Chase Lochmiller: Yeah. [laughs]. Definitely excited to be here and, well, it's kind of the whole community they built with My Climate Journey and really excited to kind of share our story.
Jason Jacobs: Well, maybe that's a good segue. So, taking it from the top, what is Crusoe Energy?
Chase Lochmiller: Crusoe Energy... You know, we started the business originally focused on solving this problem in the oil and gas industry.
Jason Jacobs: Which problem?
Chase Lochmiller: It's called flaring. Flaring results when oil companies drill oil wells and they... 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 it is terrible for the environment. Methane's an incredibly potent greenhouse gas. You know, it traps 84 times more heat in the atmosphere than CO2. And flaring it, they also, you know, end up venting quite a bit of the gas as well, just because flares don't fully combust the methane.
Jason Jacobs: Flare, meaning set it on fire?
Chase Lochmiller: Exactly. It's just a big flaming fireball out in the middle of the oilfield. This has been a problem and, you know, this is been a... If you look at the EIA website, you can see, you know, the... 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 kind of a low-hanging fruit in the energy transition. So you have initiatives like the World Bank has an 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 i-in an economic capacity. And what Crusoe's solution was, was we could actually... 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, you know, high-performance computing and digital currency mining, uh, applications.
Jason Jacobs: So, putting aside the emission footprint and the harm for the collective good in the planet, what are the advantages and disadvantages of flaring versus venting for these oil and gas companies?
Chase Lochmiller: If they're able to flare the gas entirely, at least they're able to... Methane, obviously, has a much more potent greenhouse gas, so, so that is a benefit. However, but from a climate impact standpoint, as well as a kind of a you don't want just like a lot of methane being leaked. It creates a fire hazard for everyone.
Flaring is, uh, is better than venting but it's still not a super-effective way to deal with a natural resource. It's almost a, 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, you know, a large climate impact, alongside being a incredible waste of, of that natural resource.
Jason Jacobs: Okay. We've talked a bit about the problem. But what's the journey that led to the origin of Crusoe? And maybe going back in the, in the way-back machine. I mean, what's your journey? How did you get to the seat that you're sitting in?
Chase Lochmiller: You know, I started my career in sort of the quantitative finance space. Undergrad I did... I studied math and physics and, after graduate school, I studied computer science with a focus on artificial intelligence. I used a lot of those AI modeling techniques to basically build these large-scale stock forecasting models, which were, you know, basically, big AI and machinery models that would forecast, you know, future stock prices, and then we build these automated trading strategies that would capitalize on those in sort of a high-frequency and this, this arbitrage manner. You know, in doing that, I was always a big user of large-scale computing resources, so, you know, these big grid computing infrastructure that requires a tremendous number of CPUs and GPUs, and also demand quite a bit of power. So, power was kind of a... one of the big costs associated with operating those assets.
I ended up leaving that and getting really deep into the digital asset cryptocurrency space. I was an early partner in a, a hedge fund called Polychain Capital. I was really intrigued by the notion of creating a non-central bank-controlled global currency. It always kind of made a lot of sense to me, just the way the Federal Reserve kind of operates never really... And, as soon as we kind of went off the gold standard as a... for the US dollar, I think it kind of transitioned into this monetary policies governed by sort of the whims of, you know, a handful of people. And that didn't always make a ton of sense to me. So, the idea of being able to protect purchasing power through an inflation schedule that's defined in software really resonated with me.
I'd always been kind of following the space, and then, you know, ended up meeting this guy, Olaf Carlson-Wee, who was the first employee at Coinbase, and he was leading to set up this fund, you know, to invest exclusively in digital assets of cryptocurrencies. And so, that was in 2016 that, you know, he set up the fund. I joined him in early 2017. And I thought it was a very interesting transition that applied a lot of the things that, you know, I was good at, and the experience that I had in traditional markets, put to kind of this brand new asset class that was just emerging and just kind of coming to be.
So, I thought it was a really cool opportunity. I ended up joining him, and that fund grew quite a bit, and has continued to grow, the growth and, you know, adoption and usage in the digital assets and cryptocurrency space. I ended up leaving Polychain in 2018, and there was like a personal dream of mine to climb Mount Everest. And so, I spent about two months in Nepal climbing Mount Everest. It was a great moment in time for me to kind of clear my head and think about, you know, what I wanted to do with my life. And what inspired-
Jason Jacobs: That's what most people do when they want to reflect. They just go climb Mount Everest, right?
Chase Lochmiller: [laughs].
Jason Jacobs: [laughs]. I go on a three-mile run or five-mile run, personally.
Chase Lochmiller: Yeah. [laughs].
Jason Jacobs: And I feel pretty good about that, or I did until, until having this discussion.
Chase Lochmiller: It was always a dream of mine. You know, I was inspired by this... I had this teacher in middle school, and her husband was this blind guy named Erik Weihenmayer. Erik became the first blind man to climb the Seven Summits. It's the highest peak on each continent. And when she was my teacher, he was actually training to climb Mount Everest. And I thought that was the coolest thing like I'd ever heard of. And so, I was kind of following his journey, and that ever since that, the experience, it really kind of, you know, stuck with me, and something that I always wanted to go for, personally.
Jason Jacobs: Well, we can have a whole episode just about that. For purposes of focus, you climbed Everest, and then how did the dots end up connecting? And in what order? And in what timeframe to... for, for Crusoe to come to be?
Chase Lochmiller: While I was in Everest, I was reflecting on kind of ways that I could contribute towards creating a huge impact for humanity at large. The space I kept coming back to was sort of this infrastructural layer of computer. So, a lot of the work that I'd done in, in sort of the AI space, a lot of these non-linear modeling techniques, they're not new. They've been iterated on and there's been a lot of research innovation sort of taking place in the space on, on kind of how to make them work effectively. People were using neural networks in the 1980s. But it's only been recently that we've been able to really use them effectively at a large scale. Largely because, you know, we've had an increase in access and availability of data, much bigger datasets that we're capturing, and too, incredible amounts of computational power that can train these big, big models over these large datasets.
Think about kind of the future of AI and the future of its ability to impact humanity. A lot of it is, you know, its ability to support bigger models with more computational power. There's a way to kind of, you know, help level up humanity at large. To me, it's like, you know, helping drive that innovation, make it more cost effective. So, this was kind of one thing that I was thinking about. And then, secondarily, you know, I was thinking about sort of this infrastructure layer of computing that was supporting this whole new ecosystem of digital, global, you know, this whole new digital, global, monetary ecosystem that was evolving in the digital asset [inaudible 00:11:39].
And, when you look at bitcoin, what gives bitcoin that value, and gives it security, is this infrastructural layer of computing that is supported by this premier group of miners. And the miners are effectively just running these computationally intensive nodes, um, on this distributed number. And all of those things require tremendous amounts of power.
So, I was thinking about this broad, where there were opportunities to add value. And, when I came back from my Everest expedition, and I was spending time in Denver, where I grew up, and my co-founder, Cully Cavness, he reached out to me. He's a high school friend of mine that had spent, you know, the bulk of his career in the energy industry, and give me a shout-out to me to, you know, to hear, to hear about my Everest trip. And we, actually, ended up going on a climbing trip together in the Rockies to kind of beat a whole download on it. And we ended up spending the bulk of that day, actually, discussing flaring as a problem. It's something that Cully had been dealing with firsthand, operating upstream oil and gas company. Cully had gone to Middlebury as an undergrad, but came from sort of a third-generation oil and gas family.
In Middlebury, he was like highly influenced by a lot of the big environmental movement that was taking place there. So, 350.org started there with Bill McKibben. And I think Cully, you know, his mindset was really shifted by his experience there at Middlebury and, you know, it really turned him into, you know, being an environmentalist that started his career, but they… He ended up spending the first few years of his career building geo-thermal power plants and, you know, eventually kind of made his way back into the... into the oil industry with his family. For him, it was a big struggle, especially dealing with a problem like flaring that just felt like such a blatant waste with a pretty significant environmental impact. So, we started discussing this whole problem of flaring. Honestly, I didn't really know that much about the industry at that point. I didn't know the ins and outs of how it worked. I'd never spent time in an oil field. When he started explaining a lot of this to me, like my mind was blown. I was like, "This is insane. It's just an egregious amount of waste that was unfolding on a global scale."
I was kind of coming into it with this perspective of like how can we make computation cheaper? And one of the primary inputs to that is the power cost. And so, we came up with this idea that if we could sort of solve one industry's problem with another by sort of unlocking value from that strain of energy resource with the power of computation, that was kind of our key insight that, you know, transferring data, oftentimes, is much easier and cheaper than transferring, you know, either power or gas or, you know, anything else. So, you know, that's actually why we named the company Crusoe Energy. It was named after Robinson Crusoe. He was stranded on a desert island and had to channel, you know, a very innovative mindset with his resources there on that desert island to survive. We try to channel that same, you know, innovative mindset with a vein of how we manage natural resources as well as, you know, renewable energy resources.
Jason Jacobs: There's all these things that you wanted to do with data and compute, both on the cryptocurrency side, with that infrastructure, as well as just high-performance computing to support AI and, and other high-bandwidth activities on the traditional compute side. And, meanwhile, you saw that flaring was, was producing so much waste and that if that energy was harnessed, it could be utilized, potentially, to power these things that are e- so energy-hungry. So, once you got there, and you saw, "Oh, here's this energy being wasted, and here's these things that need that energy," was the solution obvious? If so, why hadn't it been done before? I mean, how did you go about coming from identifying, almost like these two sides of a marketplace to actually knowing what to do about it?
Chase Lochmiller: We ask ourselves that a lot. I mean, when we came up with this idea initially, we initially self-funded a pilot. So, you know, I made a big investment to kind of get us up and started. You know, for me, it was unfolding like how big of a problem is this flaring thing? You know, is this something that, you know, people would be willing to pay to get rid of the gas? Or how much of a thorn in the side of these companies is it? And if we present an elegant solution, is that of great value for anyone? So, that was kind of the initial question of we want to kind of answer with our early pilot. We found that, you know, there were a lot of oil companies that really struggled with this and were really looking for economically viable beneficial solutions to be able to get rid of that gas in a responsible manner.
Jason Jacobs: Why do they care?
Chase Lochmiller: Increasingly, there's more regulatory pressure. And [inaudible 00:16:05] generally regulated on a state-by-state basis. Getting that regulatory pressure to comply with the standards that get set. You know, that's a big problem.
Jason Jacobs: Is the data there to even measure how they're doing against that accurately?
Chase Lochmiller: You know, it's not perfect but it's pretty good. In order to, you know, be a licensed operator within the state, there's certain data that they have to give to the regulators. I mean, that being said, there are definitely like incidents that are not being well monitored or low recorded. And this is one of the big issues with flaring. So like, the EDF did a study recently down in the Permian Basin in, down in Texas. And their finding was that, you know, 7% of the flares that were supposed to be combusting the gas weren't even lit. And they were just venting the methane directly into the atmosphere. Coming back to that climate impact and that, let alone the local hazard that that presents with all that combustible gas, that methane has a massive footprint in sort of accelerating the short-term warming effects of climate change.
Jason Jacobs: So, you mentioned regulatory as one reason that they care. Are there other reasons that they care? Or is that the primary one?
Chase Lochmiller: Within the current market climate for capital markets, I think there's every single oil company is looking at ways that they can, you know, help improve their environmental performance. And you're seeing this kind of across the board. Flaring and flare reduction is a huge goal for, you know, almost every publicly traded oil company at this point.
Jason Jacobs: So, it's regulatory and then it's like branding halo? Is that...
Chase Lochmiller: I mean, it's branding halo but it's also just like social license to operate, right? I mean, I think people recognize this as a huge problem that people really shouldn't be flaring. But they're doing it at a global scale in a very, very significant quantity. So, there's pressure from capital allocators for people to improve their environmental performance, which I think is kind of a net positive.
Jason Jacobs: Are you talking about the initiatives of the BlackRocks and that kind of thing, where they're... Like we had Mindy Lubber from Ceres, who came on the show, and I know she's kind of... And her organization is corralling BlackRock and a bunch of these other institutional investors to exert pressure from that direction. So, does that actually work? Is that what I'm hearing?
Chase Lochmiller: Absolutely. I think ESG used to be more of a, a tick-the-box type item for, you know, these large public companies. But, increasingly, it's becoming very core to their longterm strategy, when you're seeing this kind of, you know, in many different, you know, avenues across, you know, big publicly traded oil companies.
Jason Jacobs: Okay. So, you got a pilot going, and you wanted to know are the oil companies motivated and are there economical things that you could do with this flared natural gas? And so, one thing you learned is that it's a big problem that they're motivated to try to do something about. What else were the key learnings there?
Chase Lochmiller: The other key learnings are like could we actually do this? Like could we, you know, set up the data center or operate effectively remotely? What are the things that we need to have in place? What are the staffing that we need to put in place? How do we network it? Networking's been a big point of investment for us as a business, especially as we, you know, expand beyond applications of just bitcoin mining into other applications like, you know, high-performance computing and lendering. All of these were sort of unanswered questions and, I think, our journey has largely been about solving a lot of small independent problems. It was independent solutions really compounding on us all just to create a bigger business that solves problems that's sort of a bigger scale.
Jason Jacobs: 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?
Chase Lochmiller: We generally set up onsite that all of our equipment is designed to mean mobile and modular, so we have, you know, 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 kind of like this big tower that, you know, 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 using 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.
Jason Jacobs: By using the flared natural gas, it is getting consumed by the data center rather than released into the sky?
Chase Lochmiller: 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. So, that's the story there.
Jason Jacobs: What use cases are you utilizing the flared natural gas for today? And what kind of scale are we talking about in terms of how much that natural gas is being utilized?
Chase Lochmiller: 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 the 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 sort of 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 sort of provide this buyer of last resort, and that helps wind energy companies underwrite development of more and new projects and 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.
Jason Jacobs: So, the six units that you have to put in today, are they exclusively being used for bitcoin mining?
Chase Lochmiller: No. So, we have a handful of units that are being used today for high-performance computing. We're sort of operating in a private beta right now. We're going to be launching that to the public here, uh, at some point in Q4, which we're pretty excited about. You know, but the idea is having a low-cost carbon-negative computing cloud environment.
Jason Jacobs: But primarily bitcoin mining today?
Chase Lochmiller: Primarily bitcoin mining today. Bitcoin mining has been a great tool for us to get to scale, and help operators that are dealing with flaring issues at a meaningful scale. It's been a great way for us to kind of meet that demand and meet them.
Jason Jacobs: What's the relationship? And how does the money change hands with the oil and gas companies that have the flared natural gas? And then, maybe talk a bit about the bitcoin mining operation, and how that side of the business works.
Chase Lochmiller: Generally, our relationship with them is, we set up a gas purchase agreement with them. We set up onsite and set up a gas purchase agreement so that the commodity ownership changes hands. And that's important primarily from a royalty ownership perspective because, typically, there's many different people that have an interest in the actual royalties that are associated with a, a certain acreage position. You need to have some number to point to that's says, "Okay, there was gas produced on this site. It was sold for this much."
Jason Jacobs: Is it a consequential number? Or is it more just a token, just for the legal agreement?
Chase Lochmiller: Typically, for us, we're not purchasing gas at a market rate or anywhere close to it. It's, it's sort of a token amount to basically manage this transfer of ownership for loyalty owners.
Jason Jacobs: And they do that so they can, uh, essentially, they are getting help satisfying the regulators, and with their brand halo, and with their social license, essentially, for free. And what you get is you get the energy to power the bitcoin mining. And high-performance competing.
Chase Lochmiller: There aren't a lot of good alternatives to flaring. One is building more pipelines. That takes time and significant amounts of capital investment. That often doesn't make economic sense for the operators, between the long lead times and sort of a negative EV sort of investment that they're making. That's not a great option for them. There are other options like liquefying the gas onsite into LNG and then transporting the liquids. That's very, very expensive. Pressing the gas onsite and transporting that CNG is another alternative. But again, neither of those are very economic. We present an alternative that's mobile modular, highly economic.
Jason Jacobs: Can you talk a bit about bitcoin mining for anyone that isn't familiar with just how it works? And is it one-size-fits-all for all bitcoin mining operations? Or are there important distinctions related to your approach? Or even one approach from another?
Chase Lochmiller: The way the bitcoin blockchain works is that transactions that occur between peers on the bitcoin network get batched into these transactions, um, that occur roughly every 10 minutes. If I wanted to send you one bitcoin, I would publish that transaction to the network and say, "Hey, I want to send Jason one bitcoin." And that would basically get folded into the next batch of transactions.
Now, in order for that batch of transactions to get processed, what happens is the miners are searching for a particular solution to this mathematical puzzle, which is very computationally complex to solve. One of the miners on this distributed network of computing nodes finds that solution, and they say, "Hey, everybody. Aha! I found the solution. Here it is." And everyone can check it and make sure that it's valid very quickly and easily. And so, once that takes place, everybody basically creates consensus that this batch of transactions has been processed. Chase's one bitcoin has been moved to Jason's.
And so, you know, that's kind of what's happening behind the scenes of bitcoin blockchain. The miners make money in two ways. They get paid. Each of those transactions has an associated transaction fee. And, secondarily, there's what's called a block award, which is newly minted currency that gets minted on each block. So, right now, the block board is 6.25 bitcoin. So, for each new bitcoin, you know, the miner gets rewarded with this large block award, as well as transaction fees that are associated with that block. But, at a $50,000 bitcoin price, it's a pretty, uh, hefty, uh, financial reward for each new block that gets out.
Jason Jacobs: So, is the primary business for Crusoe, at least as an entry point to the market, is bitcoin mining operation?
Chase Lochmiller: Currently, that's our big profit driver. You know, it has a lot of unique characteristics that make it useful for solving some of these energy infrastructure challenges that, you know, we're faced both in renewables as well as waste recovery and sort of legacy of fossil fuel businesses.
A couple of the amazing characteristics of it is, one, it's highly distributed. That's useful for, you know, solving a problem like flaring, where, you know, you have 6,000 flares domestically here in the United States. That could be 6,000 different growth-scale data centers that could be deployed to help solve that challenge. A second great quality about bitcoin mining is that it's highly interruptible. When you think about a lot of different computing tasks, particularly around cloud computing, if I said, "Hey, I'm going to interrupt your process sporadically," that might be a show-stopper for many different applications. And you're not going to run a website on a service that, you know, basically says, "Hey, we're going to randomly shut you down here and there."
But for bitcoin mining, because it's distributed, because it's highly decentralized, it's very, very robust to individual node interruptions, which makes it super useful for things like [inaudible 00:29:03] stabilization. So, you know, I talked a little bit about this wind power project that we're focused on. In that project, the beauty about what we're able to do is we're able to help overbuild renewable infrastructure to the standard base load, so that it can meet the demands of peak demand without having to use fossil fuel power [inaudible 00:29:22].
Jason Jacobs: And then, it's so energy-intensive that I can just like suck up all the difference whenever it's not being utilized off-peak?
Chase Lochmiller: Exactly. But it can be curtailed in moments of like peak demand.
Jason Jacobs: Why do you think that bitcoin gets such a bad rap from the climate world?
Chase Lochmiller: So, 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's millions of people around the globe, or, you know, hundreds of millions of people around the globe that do find utility in bitcoin. So, it's tough to like 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.
Jason Jacobs: And I think what they would say is, they would say, "Well, those are just speculators that are... It's like a big MLM system where things will come home to roost eventually because there's no real utility, other than trading."
Chase Lochmiller: I don't want to, necessarily, get into the philosophical debates of does bitcoin have value or not. I think if someone is vehemently opposed to bitcoin having any value, like we're, we're probably just not going to see eye-to-eye. And that's totally fine. Bitcoin can create tremendous value for the future of energy infrastructure. These, in sort of facilitating this alignment of bitcoin mining, and that is a interruptible, mobile, highly distributed workload with the future of the climate and the future of energy infrastructure. And that's really core to our mission at Crusoe, right? So, if we can help the oil industry reduce their emissions for ongoing operations during this sort of whole energy transition phase that we're going through, and we can simultaneously help accelerate the development of more renewable projects that create a more renewably powered grid, I think, independent of if you have any negative view of bitcoin, I think that's a huge positive outcome for just the overall energy infrastructure of the world.
The energy argument is funny to me because when you look at like the global footprint of Facebook servers, you can say, "Oh, wow! Like the carbon footprint of these things is insane." Like the amount of energy that's being consumed by Facebook is as much as Poland. I don't have the numbers, but it's an obscene amount of power that's being consumed by global data centers and global servers. I mean, globally, data centers consume about 5% of the global power production. And a lot of that's going towards you scrolling your Instagram feed.
I read a statistic the other day, and it's about one and a half grams of carbon per minute spent on Instagram. And, to me, the social media is actually the biggest tax of them all. I would say it actually fits the negative social value. But that's maybe a different debate. I think, when comparing creating a new decentralized global monetary ecosystem and creating a social media, global social media network, I actually find a lot more value to the bitcoin network than I do in Facebook.
Jason Jacobs: 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?
Chase Lochmiller: I think it's both. So, I think the sign of a thriving society is, you know, 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, harness 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 which is what we're doing with digital [inaudible 00:33:45].
Jason Jacobs: It sounds like today, primarily, as an entry point for the company, it's flared natural gas and it's bitcoin mining. But, directionally, you mentioned this pilot around wind, so there's some other, essentially, ways that you could get energy and utilize it to power applications, whether it be bitcoin or something else. But then, there's also a path from bitcoin. You mentioned high-performance computing and maybe there's other applications over time. So, is that how to think about it? That you've got bitcoin, you've got flared natural gas, and there's more applications over time, and there's more energy sources over time?
Chase Lochmiller: Exactly. So, Crusoe's mission is to build a large-scale clean computing business that aligns the future of computing infrastructure with the future of the planet. So, we do that by helping reduce emissions from the fossil fuel industry with computing infrastructure, and by sort of helping accelerate more renewable development with entirely renewably powered data centers. The data center applications that we're focused on today are primarily very energy-intensive ones. So, digital currency mining is definitely one of them, and training AI models in rendering applications. They're in a pilot phase for us right now. But we're going to sort of launch a broader scale of cloud services platform that's going to be available here in Q4.
Jason Jacobs: So, the bitcoin mining, it powers bitcoin mining but it's you doing the mining and you, being Crusoe, that benefits from the economics of that. For this high-performance computing, will it be the same? Will it also be for your applications that you own? Or, or is this a high-performance computing platform in the way that, say, Amazon is, where you've got customers that utilize Crusoe to power what they want to do, and they pay you in a [inaudible 00:35:24] model?
Chase Lochmiller: It's the second. So, we are building this for third-party customers. We've been working with a handful of research institutions like MIT to basically get, you know, the early product development piece in place. But our goal is to be able to help researchers power their computing workloads. One, in a way that's super clean, environmentally friendly. And two, in a way that's cost effective. So... And I think there's this notion that when something's clean or it has to be more expensive. And the notion is not, necessarily, right. For energy-intensive computing workloads, we can provide a service that's both cleaner and cheaper than existing offerings.
Jason Jacobs: I have the same question but, I guess, pointed at those two different sides of the marketplace. So, 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? And then, which ones are specific to the energy source that you're working with? And I have that same question in terms of bitcoin mining versus high-performance computing versus anything else you might power over time. So, for example, you're utilizing flared natural gas. Primary use case was the 60-something units that you have. But you've got this pilot now to use wind instead of flared natural gas. Is everything else the same? Like does it matter if it's flared natural gas or wind? Or do you have to rejigger things and have a different process and have different skillsets around the table, and... In other words, uh, how modular is it... I don't know if I'm phrasing it right... as you go from one energy source to the next?
Chase Lochmiller: 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 in basically utilizing that gas to mind bitcoin with and sort of 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 a 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 [inaudible 00:39:20].
Jason Jacobs: I think so. So, what I'm hearing is basically that you set up shop onsite at the source of whatever the energy is that you're using, and you find viable applications of it, and you look for energy sources, or pockets of energy sources, that would have otherwise been going to waste.
Chase Lochmiller: Spot on. Always looking for how we can eliminate waste in the system. And we think that having, you know, a distributed network of flexible computing workloads is a great way to plug a lot of those gaps. We've also looked at other renewable assets, ranging from solar, geothermal, hydro, as well as some interesting nuclear opportunities as well. So, a lot of interesting stuff to be done out there.
Jason Jacobs: If you look at the landscape and the transition that we need to go through with energy in general, what are the biggest blockers or artery-cloggers, if you will, that are making our progress slower? And what could be changed to help unclog those arteries and accelerate the transition? I think, specifically, I'm asking about stuff that is outside of the scope of Crusoe control.
Chase Lochmiller: I mean, one of the biggest things, obviously, is grid-scale battery storage or, you know, grid-scale storage power, can really help accelerate the adoption and, you know, utility of a lot of these intermittent renewables, like wind and solar.
That's actually one area that we feel data centers can help fill as well because you deal with this problem where, when the wind is blowing there's no marginal buyer for power. And it's sort of a good problem to have as a society. It's means like, you know, we have sort of this excess supply of unused power. It creates difficulty for new project developers to build additional projects, given, you know, there's already sort of moments of no demand. So, batteries help fix this. But, you know, I think there's a long way for us to kind of go in that regard. I know there's a lot of really cool, interesting startups that are tackling that challenge. But, you know, we really believe it's going to require a multi-faceted approach that's not just a silver bullet of, you know, magic battery solution.
Jason Jacobs: And where does government fit into all this? What are the biggest risks, as it relates to government and policies to the Crusoe business? And what are the biggest opportunities as well, where they could be an accelerant to your efforts?
Chase Lochmiller: The biggest risks, I would say the regulatory climate for the digital currency space is constantly sort of evolving. Most people you speak with would say, you know, kind of the genie's out of the bottle at this point, and that digital currencies are really here to stay. Managing that and just kind of staying on top of that is definitely like a big component of regulatory engagement efforts.
The other side of it, actually, is on the flaring side, for digital [flammidigation 00:42:00], that is typically governed and managed on a state-level basis. We think that there should be more regulations around flaring. It is crazy in certain places that it's not regulated more. That could be, potentially, a big positive for Crusoe, and a big positive for the climate impact of flaring. In North Dakota, it's governed by a group called the North Dakota Industrial Commission. So, they currently have a gas captual which tells operators they need to capture 91% of the gas that they produce. Having these incentives in place has really helped improve the overall flaring performance. I think, in 2019, this... where 19% of the gas that was produced. So, it's really a substantial waste that's not happening, to last year, which, obviously, helped by the fact that, you know, a lot of wells were shut in due to COVID and whatnot. But they're flaring percentage dropped out to, uh, you know, about 7%, which includes all a huge positive for that environment [inaudible 00:42:56] space. So, those are the two big regulatory things that we're focused on.
Jason Jacobs: And given that you said at the intersection of bitcoin and energy and high-performance computing, would you say that you've got active dialogues going across all three of those communities? I mean, I'm curious. If you look at the climate community, in particular, how much time do you spend with them? How much time do they spend thinking about you? And is that an active dialogue? And also, how do you want it to be, going forward, given that there's a number of them that listen to the show, what message do you have for them? And who do you want to hear from, if anybody? How can they be helpful to you?
Chase Lochmiller: We raised our Series B earlier this year. With that funding, I think, it's helped us invest more in, you know, having a bigger public presence. Early on, we were just so focused on execution that, you know, we weren't really thinking about, you know, engagement with, uh, broader communities and whatnot.
I think we are, particularly around just kind of getting people excited about the problems that we're trying to solve with flaring, and the problems that we're trying to solve in, in helping accelerate the transition to a, a more renewably powered grid with large-scale computing resources. You know, we definitely want to engage more with the climate community, as well as the high-performance computing community is a new community for us as well. And we're watching this product more publicly here this fall. We're hoping to engage with more people that have large-scale computing workloads, and that care about the climate impact of those workloads.
It definitely is a unique intersection but we think that, you know, more stuff is happening, and the more developments happening with mobile applications, the more things are happening remotely with video chat. It's never been more important for us to align the energy impact of our computing infrastructure than it is today. It's sort of existential that being power usage that's growing at an exponential rate at a time when, you know, we really are at a important crossroads for the future of humanity and the future of the planet as it leads to how we manage our, our climate for products [inaudible 00:44:55].
Jason Jacobs: Jeez, is there anything I didn't ask that I should have? Or do you have any parting words for listeners?
Chase Lochmiller: Because this is mostly a climate-focused community, I think sometimes people can automatically conflate something that's working with the oil and gas industry as like being bad. The oil and gas industry, when you look at the progress of humanity that's unfolded in the last 150 years, I think, more than any other industry has, has helped drive that. And I think there's a future energy world that doesn't rely on fossil fuels. And I think that's something that we're all sort of interested in kind of building towards. But being pragmatic about everything, there is this moment of transition, right? There's this moment of how do we effectively transition to that new world of new energy? And part of it is investing in those new technologies and those new solutions, and sort of helping accelerate that transition.
But another part of it is trying to minimize the climate impact of the fossil fuel footprint that we're going to need to require for decades to come in order to support the human quality of life that we've all come to appreciate, know, love, and rely upon for our modern existence. So, sometimes it can be nuanced, really, how people kind of view that. I think there's important problems to solve in kind of working with the oil industry to help kind of steward them into this, you know, next chapter of human energy.
Jason Jacobs: Well, this is great. You've got such a different perspective than we've had on the show before. And that's one of the goals of the show is just to kind of shine a light on lots of different perspectives, and help inform, and build empathy, and build bridges, and make connections, and just get increased collective understanding so that we can all move faster to accelerate the transition. What we draw a line around is, is everybody's goal. So, Chase, this was awesome. Thanks so much for coming on the show, and best of luck to you and the whole Crusoe Energy team.
Chase Lochmiller: Thanks, man. Appreciate you having me.
Jason Jacobs: Hey, everyone. Jason here. Thanks again for joining me on My Climate Journey.If you'd like to learn more about the Journey, you can visit us at myclimatejourney.co. No, that is .co, not .com. Someday we'll get the .com but right now, .co. You can also find me on Twitter at jjacobs22, where I would encourage you to share your feedback on the episode, or suggestions for future guests you'd like to hear. And, before I let you go, if you enjoyed the show, please share an episode with a friend or consider leaving a review on iTunes. The lawyers made me say that. Thank you.
