U.S. losing revenue from crypto mining fueled by federal gas -watchdog report

(C) Reuters. FILE PHOTO: A Bitcoin and Dollar notes are seen in this illustration picture taken September 27, 2017. REUTERS/Dado Ruvic/File Photo

(Reuters) – Some oil and gas drillers operating on U.S. public lands are diverting natural gas to power cryptocurrency mining operations without paying federal royalties, according to a government watchdog report published on Wednesday.

The Interior Department’s Office of Inspector General advised the agency, which oversees 420 million acres of federal lands, to issue guidance to address the rise of an industry that may operate unnoticed in its vast territory.

“Mining” cryptocurrency requires huge amounts of electricity to power computers that compete to solve mathematical puzzles to validate transactions.

The process has drawn criticism from environmentalists and governments that worry about its heavy reliance on climate-warming fossil fuels to create electricity.

In its report, the IG said cryptomining units in Colorado had been located on or near federal lands leased for oil and gas development and were diverting gas from those leases.

The mobile units may be undetected for long periods of time by federal officials responsible for overseeing large areas of public land, the report said.

“These activities generate revenues for private companies using federally owned gas, at times without the leaseholder paying mineral royalties,” the report said.

The issue was raised by the Colorado Oil and Gas Conservation Commission, which told the IG that the crypto operations may pose environmental and health and safety risks and could be underinsured for accidents.

In its response to the IG, Interior said it would take action to inform staff of the threats outlined in the report and work with agency officials to discuss how guidance could be crafted for the department.

The royalty rate for federal onshore oil and gas leases issued since August of last year is 16.67%, and it is 12.5% for older leases, according to the Bureau of Land Management. The Interior Department generated more than $1.7 billion in revenue from onshore natural gas royalties last year, according to federal data.