Addressing Global Challenges: Crusoe Energy's Innovative Approach

The founders of Crusoe Energy propose a potential resolution to two significant global issues: the escalating energy demands of the technology sector and the greenhouse gas emissions linked to natural gas production.

Securing New Funding for Expansion

Crusoe Energy, which utilizes surplus natural gas from energy operations to power both data centers and cryptocurrency mining, has recently secured $128 million in new funding. This investment, coming from leading venture capital firms, will facilitate the expansion of its operations. The timing of this funding is particularly opportune.

Methane Emissions: A Critical Focus

Methane emissions are gaining prominence as a key area of concern for researchers and policymakers striving to mitigate greenhouse gas emissions and maintain global warming within the 1.5-degree Celsius target established by the Paris Agreement. Crucially, Crusoe Energy is actively capturing these emissions to fuel its data centers and bitcoin mining activities.

The Importance of Methane Reduction

Addressing methane emissions is vital in the short term because these gases possess a greater heat-trapping capacity than carbon dioxide, yet dissipate more rapidly. Consequently, substantial reductions in methane emissions can yield quicker results in alleviating the environmental pressures caused by human industrial activity.

Source of Methane Emissions

The oil and gas industry represents the primary source of methane emissions. In the United States, approximately 1.4 billion cubic feet of natural gas is flared daily, according to Chase Lochmiller, a co-founder of Crusoe Energy. Roughly two-thirds of this flaring occurs in Texas, with an additional 500 million cubic feet flared in North Dakota, where Crusoe has concentrated its initial operations.

Combining Expertise for Environmental Preservation

For Lochmiller, formerly a quantitative trader at prominent financial institutions, and Cully Cavness, a third-generation member of an oil and gas family, capturing natural gas and utilizing it for computing represents a synergistic blend of their respective backgrounds in financial engineering and environmental stewardship.

The Genesis of Crusoe Energy

The two Denver natives initially connected during prep school and maintained their friendship. After Lochmiller attended MIT and Cavness pursued studies at Middlebury, they eventually collaborated to establish a business. Through Lochmiller’s experience with large-scale computing and the financial sector, and Cavness’ involvement in the family business, they recognized the need for a more effective approach to address the substantial waste associated with natural gas.

Initial Discussions and Business Development

Discussions surrounding Crusoe Energy commenced in 2018 during a climbing trip in the Rockies, where Lochmiller and Cavness discussed Lochmiller’s journey to Mount Everest.

Early Investment and Focus on Bitcoin Mining

The company’s initial focus was on identifying an environmentally responsible solution for the energy footprint of bitcoin mining. This proposition attracted the attention of investors at Polychain, founded by Olaf Carlson-Wee (and Lochmiller’s previous employer), as well as Bain Capital Ventures and Valor Equity Partners.

Initially, I expressed skepticism regarding the company’s core premise, concerned that it might merely prolong the use of hydrocarbons and support a cryptocurrency with limited practical application beyond speculative investment. However, I have since reassessed my initial evaluation.

Valor Equity's Perspective on Sustainability

According to a statement from Valor Equity, “Crusoe only pursues projects that demonstrably reduce emissions. The wells Crusoe utilizes are already flaring gas and would continue to do so without Crusoe’s intervention. The company declines projects that would increase demand for gas from traditional pipelines, avoiding any net increase in emissions.”

Furthermore, the statement highlights that “mining can provide an interruptible base load demand that can be reduced when grid demand increases, incentivizing the addition of more renewable energy sources.”

Additional Investors Join the Effort

Further investment has come from: Lowercarbon Capital, DRW Ventures, Founders Fund, Coinbase Ventures, KCK Group, Upper90, Winklevoss Capital, Zigg Capital and Tesla co-founder JB Straubel.

Current Operations and Future Expansion

Currently, Crusoe operates 40 modular data centers powered by previously wasted natural gas across North Dakota, Montana, Wyoming and Colorado. The company anticipates expanding to 100 units next year with entry into new markets like Texas and New Mexico. Since its inception in 2018, Crusoe has established itself as a viable solution for reducing flaring through energy-intensive computing, including bitcoin mining, graphical rendering, artificial intelligence model training, and protein folding simulations for COVID-19 research.

Efficiency and Additional Benefits

Crusoe achieves 99.9% combustion efficiency for its methane and is also contributing to improved networking infrastructure at its data center and mining locations. This enhanced connectivity could ultimately benefit rural communities near Crusoe’s sites.

Diversifying Applications

While 80% of the company’s current operations are dedicated to bitcoin mining, demand is growing for data center applications. Several universities, including MIT, are exploring Crusoe’s services for their computing requirements.

“This is currently in an incubated phase,” Lochmiller stated. “A private alpha with a few test customers… we’ll make that publicly available later this year.”

Cost-Effectiveness and Competitive Advantage

Crusoe Energy Systems is projected to have the lowest data center operating costs globally, according to Lochmiller. While investment will be required to support the infrastructure needed to deliver data to customers, these costs are minimal compared to energy consumption.

A Solution for Cryptocurrency Criticism

The same applies to bitcoin mining, where Crusoe offers an alternative to coal-powered operations in China and avoids the need for constructing new renewable capacity solely for cryptocurrency purposes. As cryptocurrencies seek to address concerns about their energy usage, Crusoe presents a compelling solution.

Regulatory and Institutional Support

Favorable regulatory and institutional trends are also driving the company’s progress. New Mexico recently enacted laws limiting flaring and venting to 2% of an operator’s production by April of next year. North Dakota is promoting incentives for on-site flare capture systems, and Wyoming has passed legislation incentivizing flare gas reduction for bitcoin mining. Major financial institutions, including BlackRock, are advocating for an end to routine flaring by 2025.

“We clearly define our power consumption and evaluate projects based on their ability to reduce emissions from oil and gas operations,” Lochmiller concluded.