The energy capacity of farms for the extraction of cryptocurrency in the oil fields of the Russian Federation has reached 85 MW, which is 23% of the market, analysts at Vygon Consulting have calculated. Farms are supplied with energy by small power plants using associated petroleum gas (APG). Their average annual revenue may exceed 1 billion rubles, and in the future – grow tenfold. Investors are already considering new 200 MW projects, market participants say. However, the development of mining in the Russian Federation is hindered by Western sanctions.
More than ten cryptocurrency mining farms with a total power consumption of 85 MW are already operating in the oil fields of the Russian Federation, which is 23% of the total capacity of mining centers in the country, follows from a study by Vygon Consulting. These farms – data processing centers (DPCs) – consume electricity, which is produced using APG. The oil company does not participate in mining, but only sells energy to a third-party data center.
For oil companies, associated gas is, in fact, a by-product that must be disposed of by law. One way is to use APG to generate energy. Selling part of the energy to crypto farms is a new and most profitable way to utilize associated gas, since it does not require the construction of a gas transportation infrastructure to supply APG to gas processing plants.
Companies annually use 17 billion cubic meters of APG at power plants to supply energy to their fields. Of this volume, cryptocurrency mining accounts for 279 million cubic meters of APG, according to Vygon Consulting. Only in July, the revenue of APG miners amounted to 400 million rubles. with an average July exchange rate of $20,000 per bitcoin. The projected annual income (from July 2022 to July 2023) at a rate of $20,000 per bitcoin will be 4.8 billion rubles. On the horizon of six years (the life of the farm), annual revenue is estimated at 1.16 billion rubles.
The main expense when starting a farm is the purchase of special equipment (ASIC). According to Vygon Consulting’s calculations, a farm on new machines and with free APG pays off only at a bitcoin rate of $21.6 thousand. But the business becomes profitable for the oil company and the data center when opening a farm on equipment that has already paid off. In this case, at an APG price of 1 thousand rubles. per 1,000 cubic meters, the cost of production will be $12,000 per bitcoin.
The APG mining market may grow several times, analysts believe. If 1.6% of associated gas currently flared is used for mining, then the annual income of projects will double, to 2.5 billion rubles. In an optimistic scenario, a third of all flared APG volumes can be directed to mining. In this case, the market will increase immediately by 25 times, up to 30 billion rubles. per year.
However, the development of mining in Russia may face problems due to sanctions. For example, the EU has already introduced restrictions on transactions with crypto wallets of Russian users, and international crypto exchanges restrict access for Russians due to fear of secondary sanctions. However, companies find a way out: the owner of a bitcoin mining farm can register in another country, Vygon Consulting analysts say.
Gazprom Neft began to implement pilot projects to create “digital centers for energy-intensive computing based on APG energy” back in 2019-2020, the company told Kommersant. Now such an infrastructure already exists at the company’s enterprises in three regions. The business model of Gazprom Neft “does not include work with digital currencies.” The goal is to develop new ways of beneficial use of APG at new fields where there is no gas transportation infrastructure yet. The company provides partner data centers with electricity, and partners “are engaged in the implementation of services based on the generated computing power.”
Russian companies are experiencing problems with the purchase of computing equipment for mining due to sanctions. Although both new and used cars are still entering the country, the path “has become longer legally and logistically,” says Roman Zabuga, co-owner of BWC UG. At the same time, the equipment is still much cheaper than a year ago. According to the expert, the installed capacity of APG mining farms is about 30–40 MW. According to Roman Zabuga, investors have plans to implement large-scale projects with a capacity of 200 MW.