Oct 01, 2021

My Climate Journey's Investment in Crusoe Energy

My Climate Journey's Investment in Crusoe Energy

While the final product produced by the oil and gas industry is widely known as a contributor to climate change, the emissions resulting from drilling operations required to produce fossil fuels have largely avoided public scrutiny. When crude oil is pumped from the ground, methane, which is 80 times more heat-trapping than carbon dioxide, and other noxious gases accompany it to the surface. Due to the risks these by-products pose to human health, oil and gas companies routinely attempt to burn them off through flaring. However, flaring is often plagued by inefficiencies, changing production conditions, and other factors that lead to the release of methane to the atmosphere. As a result, 275 metric tons of uncombusted CO2e greenhouse gases from oil and gas sites are emitted globally per year.

The deleterious effects of flaring on climate have attracted the attention of the Biden Administration, which has made reinstating Obama-era curbs on methane release a key priority of its climate agenda. In countries where flaring is rampant (like the US, Nigeria, and Russia), there is no productive way to harness this methane as an energy source in a manner that is both climate-friendly and addresses the logistical issues of transporting the gas to market.

Crusoe Energy, based in Denver, Colorado, is addressing the climate impact caused by flaring emissions 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 into the atmosphere.  

We’re excited to announce our investment in Crusoe Energy whose founders, Chase Lochmiller and Cully Cavness, envision building a business around “clean computing,” based on energy infrastructure that is climate-aligned.

What is Crusoe Energy?

Crusoe Energy provides oil and gas companies with a simple-to-deploy, low-cost solution for eliminating emissions resulting from methane flaring. Its “Digital Flare Mitigation®” (DFM) technology converts almost 100% of methane emissions from otherwise flared gas to electricity, which it uses to power cryptocurrency mining. The benefit of this technology is twofold: one, oil and gas companies are able to reduce as much as 63% of their CO2-equivalent emissions and two, energy-intensive computational activities, like cryptocurrency mining, can be performed with electricity that’s cleanly generated.

At the core of the company’s DFM technology is a gas-capture and processing system which employs catalytic converters that eliminate a range of emissions streams that would otherwise impact climate and local communities. On the data services-end, Crusoe’s modular data centers deploy easily and efficiently onsite at oil & gas facilities and are equipped with best-in-class processing hardware and software. Crusoe’s DFM system is able to cost-effectively power not only crypto-mining but also a range of other energy-intensive data processing operations.

Presently, Crusoe makes money by positioning itself as the lowest-cost Bitcoin mining operator. While the cryptocurrency trading market has shown itself to be historically volatile, Crusoe has been able to operate economically, in spite of price fluctuations, due to its ability to generate inexpensive electricity.  

Why Did We Invest?

Strong Founder-Market Fit

The Crusoe founders blend complementary expertise with a long history of friendship. Prior to starting the company, Chase Lochmiller, Crusoe’s CEO, worked in the cryptocurrency industry, serving as General Partner at Polychain Capital, a leading crypto-asset hedge fund. Cully Cavness, Crusoe’s President, hails from the energy industry and spent time as the Vice President of Finance at Highland Natural Resources. Both grew up in Colorado and have been friends since high school.  

A Multifaceted Climate Value Proposition

Crusoe is poised to deliver climate impact to two discrete sectors each with its own sizable carbon footprint: the oil & gas industry and data services. Under immense regulatory and economic pressure, oil & gas companies are seeking effective solutions to mitigate emissions. Flaring is projected to drive 1% of global anthropogenic carbon emissions and presents a meaningful opportunity to reduce GHGs directly stemming from oil & gas operations. Similarly, cloud computing as a sector is estimated to drive 2% of global emissions. Beyond data centers and oil & gas, Crusoe offers a solution for the energy-intensive mining of Bitcoin, which generates 23 million metric tons of CO2 annually, equivalent to the emissions produced by the Netherlands. 

We support and are working hard to bring about a world that has an all clean energy future, and we believe fossil fuels should be left in the ground. But we're also realists, and understand that there is a period of transition happening that will take time to play out. While it would be great if methane weren’t flared, harnessing and utilizing it is significantly better for our climate than allowing it to be released into the atmosphere. We see this as additive to doing all we can to get off fossil fuels entirely, as the Crusoe approach could be an efficient way to reduce emissions from Bitcoin mining operations.

Compelling Opportunities in Renewable Energy

The notion of “stranded energy” has been used to characterize renewables like wind power and geothermal energy that may, at times, produce excess electricity during periods of low grid demand. In these cases, Crusoe envisions deploying its modular data services to take advantage of low-cost renewable energy when there’s a surplus of supply. By making productive use of renewables during periods of low-demand, Crusoe believes it can augment the value of renewable energy projects by coupling them with scalable, adaptive, and monetizable digital activity.

The world’s data processing needs will only continue to grow exponentially as software technologies and their applications continue to advance. Figuring out how to power them sustainably is an ongoing challenge that Crusoe Energy is helping to address. Moreover, by tackling the urgent problem of flaring emissions, the company is mitigating the emissions output of active and decommissioned oil and gas wells. For these reasons, we view Crusoe’s technology as part of the critical climate infrastructure of the future.

Additional Resources

If you are an accredited investor, and want to learn more about being an investor in our fund (to back more great companies like this one!), reach out here.

Written by: My Climate Journey

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