Summary The oil and gas industry will not be able to capture and convert all 265 bcm of natural gas emissions into electricity. Bitcoin miners often tout their economies of scale and low levelized cost of electricity (LCOE) as competitive advantages. While harnessing vented methane in other ways is possible, ARK believes that Bitcoin mining is ideal. By Sam Korus Methane, a potent greenhouse gas, is a byproduct of oil and natural gas drilling. Every year, the global oil and gas industry spews 265 billion cubic meters (bcm) of natural gas emissions into the atmosphere, vast amounts of energy that Bitcoin mining could harness productively, as shown below. While oil and gas companies flare/burn roughly 140 bcm of natural gas emissions to convert methane into less harmful carbon dioxide, it vents the other 125 bcm of methane directly into the atmosphere. Only 25 bcm, or ~10%, of total natural gas emissions would be necessary to support Bitcoin's current hash rate [1] globally. For informational purposes only and should not be considered investment advice or a recommendation to buy, sell, or hold, any particular security or cryptocurrency. Source: ARK Investment Management LLC, 2022; Chen et al. 2022 [2] The oil and gas industry will not be able to capture and convert all 265 bcm of natural gas emissions into electricity. While both flared and vented methane emissions could be used for Bitcoin mining, ARK believes that vented methane will be the first target because it is ~120 times more toxic than carbon dioxide when released into the atmosphere [3] , and companies haven't sunk infrastructure costs into flaring ecosystems. Of the 125 bcm in vented methane emissions, ARK estimates that only half occurs at well sites, the easiest and most productive locations for Bitcoin mining, as shown below. For informational purposes only and should not be considered investment advice or a recommendation to buy, sell, or hold, any particular security or cryptocurrency. Source: ARK Investment Management LLC, 2022; Chen et al. 2022; International Energy Agency 2022 [4] ARK's research suggests that installing natural gas generators at well sites and using methane that otherwise would be vented to mine Bitcoin could generate electricity at a cost much lower than public Bitcoin mining companies pay today. Assuming no supply constraints on mining hardware, Bitcoin miners could harness vented methane and undercut "pure play" Bitcoin mining companies, pushing them into the unprofitable territory. Moreover, if utility regulators were to introduce carbon abatement pricing plans, using vented methane to mine Bitcoin would become that much more attractive. We illustrate this competitive dynamic in the chart below. Bitcoin miners often tout their economies of scale and low levelized cost of electricity (LCOE) as competitive advantages. ARK's research suggests the LCOE of a natural gas generator using stranded methane [5] is lower today than that of public Bitcoin mining companies. If more companies or individuals were to mine Bitcoin at well sites, the network's hashrate likely would increase, lowering the average revenue/hashrate of miners elsewhere. If Bitcoin miners using vented natural gas were to generate revenue/hashrate at a price below 6 cents, then public mining companies paying roughly three cents for electricity today potentially would be forced out of business. For informational purposes only and should not be considered investment advice or a recommendation to buy, sell, or hold, any particular security or cryptocurrency. Source: ARK Investment Management LLC, 2022 While harnessing vented methane in other ways is possible, ARK believes that Bitcoin mining is ideal: it is distributed and highly scalable with modular hardware that can be transported to and shifted among operating well sites. Because oil and gas wells often have short lifespans, Bitcoin mining could make the difference between high and low returns on investment in oil and gas fields. 1* Hash rate is a measure of computational power used to mine and secure proof of work blockchains. 2* https://pubs.acs.org/doi/10.1021/acs.est.1c06458 Yuanlei Chen et al. 2022. Quantifying Regional Methane Emissions in the New Mexico Permian Basin with a Comprehensive Aerial Survey. 3* http://large.stanford.edu/courses/2016/ph240/jadhav1/ 4* https://iea.blob.core.windows.net/assets/9414ec9a-bbba-4592-b005-4af05c894bdc/Theenergysecuritycasefortacklinggasflaringandmethaneleaks.pdf International Energy Agency. 2022. "The Energy Security Case for Tackling Gas Flaring and Methane Leaks." 5* Methane that otherwise would be unused or vented. Disclosure: ARK's statements are not an endorsement of any company or a recommendation to buy, sell or hold any security. 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