Power Markets

Natural Gas at Record Low Levels

Power Markets for Bitcoin Miners, 02/12/24

David Bellman

Key Takeaway #1

Prompt natural gas contracts went under $1.90/mmbbtu, the first time since September 2020 we have seen that level.

Key Takeaway #2

Natural gas sets the price for many power markets, which should lead to lower prices for miners tied to wholesale markets

Key Takeaway #3

Unlike miners, the inability or producers to just shut off gas fields slows their response.

Key Takeaway #4

Negotiating a takeaway deal with an onsite power producer could create a win-win-win situation for the producer, power, and miner. • Mining economics slightly dropped as hash continues to grow. • Natural gas prices continued to fall, as many markets observed a drop in power in the prompt year

The last time the prompt month was below $1.9/mmbtu in Henry Hub was back in September 2020. The mild winter and continued production are creating a bearish fundamental setup for natural gas, bringing several opportunities for miners. Obviously, the positive of low gas prices is that much of the US is running natural gas as a marginal power source, which sets the power price for many markets. Gas usage in the power sector has grow immensely, even in the face of growing renewable energy (slide 2).

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The last time the prompt month was below $1.9/mmbtu in Henry Hub was back in September 2020. The mild winter and continued production are creating a bearish fundamental setup for natural gas, bringing several opportunities for miners. Obviously, the positive of low gas prices is that much of the US is running natural gas as a marginal power source, which sets the power price for many markets. Gas usage in the power sector has grow immensely, even in the face of growing renewable energy (slide 2). Why do natural gas prices continue to weaken? The weather has removed much of the demand, and production continues to grow even as prices are approaching all time lows. This is due to the drive to find oil, with natural gas being a byproduct. The industry term is wet vs. dry: a wet field would have more oil vs. gas. With a wet field, the oil is paying for the economics and the gas will be flared if there is no market for it – hence the flaring penalties now being implemented in several places.

Dry field production is mainly just natural gas, with dry field development typically being the first place to cut back production. However, unlike BTC mining where turning off operations is relatively easy and harmless, turning off a field is not so simple; it may actually destroy the field and make future production infeasible. Therefore, there is likely a time period in which the producers will accept a certain amount of pain in the hope that the market recovers. The oil and gas industry is a mature industry, and many producers hedge production due to these potential outcomes. Another opportunity for miners, particularly in this price environment, is to work with a producer to secure natural gas and use it to generate onsite electricity to run miners. This can be designed to create a win-winwin situation. The first win is for the producer, who finds an outlet for the gas, mitigating flaring and allowing the field to continue to produce, The second win is for the power producer: typically, miners do not want this role and outsource/toll the gas to an independent power producer. They would deal with the gas-to-power conversion and all the maintenance issues to keep the system operating. The final winner would be the miner, who would get a location that is quickly deployable relative to on-grid sites and allows for a diversification of mining that is not griddependent and has a competitive power price. There are also positive environmental attributes as flaring mitigation is occurring, and states can now institute fines for flaring. Lastly, local power production comes with efficiency gains, since there is a reduction in line loss via long transmission. If you are looking at this type of opportunity, BitOoda can be the centerpiece to make it work for all parties

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Disclosures

Purpose This research is only for the clients of BitOoda. This research is not intended to constitute an offer, solicitation, or invitation for any securities and may not be distributed into jurisdictions where it is unlawful to do so. For additional disclosures and information, please contact a BitOoda representative at info@bitooda .io. Analyst Certification 10 David Bellman, the research analyst denoted by an “AC” on the cover of this report, hereby certifies that all of the views expressed in this report accurately reflect his personal views, which have not been influenced by considerations of the firm’s business or client relationships. Conflicts of Interest This research contains the views, opinions, and recommendations of BitOoda. This report is intended for research and educational purposes only. We are not compensated in any way based upon any specific view or recommendation. General Disclosures Any information (“Information”) provided by BitOoda Holdings, Inc., BitOoda Digital, LLC, BitOoda Technologies, LLC or Ooda Commodities, LLC and its affiliated or related companies (collectively, “BitOoda”), either in this publication or document, in any other communication, or through http on or ://www.bitooda.io/, including any information regarding proposed transactions or trading strategies, is for informational purposes only and is provided without charge. BitOoda is not and does not act as a fiduciary or adviser, or in any similar capacity, in providing the Information, and the Information may not be relied upon as investment, financial, legal, tax, regulatory, or any other type of advice. The Information is being distributed as part of BitOoda’s sales and marketing efforts as an introducing broker and is incidental to its business as such. BitOoda seeks to earn execution fees when its clients execute transactions using its brokerage services. BitOoda makes no representations or warranties (express or implied) regarding, nor shall it have any responsibility or liability for the accuracy, adequacy, timeliness or completeness of, the Information, and no representation is made or is to be implied that the Information will remain unchanged. BitOoda undertakes no duty to amend, correct, update, or otherwise supplement the Information. The Information has not been prepared or tailored to address, and may not be suitable or appropriate for the particular financial needs, circumstances or requirements of any person, and it should not be the basis for making any investment or transaction decision. The Information is not a recommendation to engage in any transaction. The digital asset industry is subject to a range of inherent risks, including but not limited to: price volatility, limited liquidity, limited and incomplete information regarding certain instruments, products, or digital assets, and a still emerging and evolving regulatory environment. The past performance of any instruments, products or digital assets addressed in the Information is not a guide to future performance, nor is it a reliable indicator of future results or performance. All derivatives brokerage is conducted by Ooda Commodities, LLC a member of NFA and subject to NFA’s regulatory oversight and examinations. However, you should be aware that NFA does not have regulatory oversight authority over underlying or spot virtual currency products or transactions or virtual currency exchanges, custodians or markets. BitOoda Technologies, LLC is a member of FINRA. “BitOoda”, “BitOoda Difficulty”, “BitOoda Hash”, “BitOoda Compute”, and the BitOoda logo are trademarks of BitOoda Holdings, Inc. Copyright 2024 BitOoda Holdings, Inc. All rights reserved. No part of this material may be reprinted, redistributed, or sold without prior written consent of BitOoda.

The last time the prompt month was below $1.9/mmbtu in Henry Hub was back in September 2020. The mild winter and continued production are creating a bearish fundamental setup for natural gas, bringing several opportunities for miners. Obviously, the positive of low gas prices is that much of the US is running natural gas as a marginal power source, which sets the power price for many markets. Gas usage in the power sector has grow immensely, even in the face of growing renewable energy (slide 2). Why do natural gas prices continue to weaken? The weather has removed much of the demand, and production continues to grow even as prices are approaching all time lows. This is due to the drive to find oil, with natural gas being a byproduct. The industry term is wet vs. dry: a wet field would have more oil vs. gas. With a wet field, the oil is paying for the economics and the gas will be flared if there is no market for it – hence the flaring penalties now being implemented in several places.

Dry field production is mainly just natural gas, with dry field development typically being the first place to cut back production. However, unlike BTC mining where turning off operations is relatively easy and harmless, turning off a field is not so simple; it may actually destroy the field and make future production infeasible. Therefore, there is likely a time period in which the producers will accept a certain amount of pain in the hope that the market recovers. The oil and gas industry is a mature industry, and many producers hedge production due to these potential outcomes. Another opportunity for miners, particularly in this price environment, is to work with a producer to secure natural gas and use it to generate onsite electricity to run miners. This can be designed to create a win-winwin situation. The first win is for the producer, who finds an outlet for the gas, mitigating flaring and allowing the field to continue to produce, The second win is for the power producer: typically, miners do not want this role and outsource/toll the gas to an independent power producer. They would deal with the gas-to-power conversion and all the maintenance issues to keep the system operating. The final winner would be the miner, who would get a location that is quickly deployable relative to on-grid sites and allows for a diversification of mining that is not griddependent and has a competitive power price. There are also positive environmental attributes as flaring mitigation is occurring, and states can now institute fines for flaring. Lastly, local power production comes with efficiency gains, since there is a reduction in line loss via long transmission. If you are looking at this type of opportunity, BitOoda can be the centerpiece to make it work for all parties

‍

‍

‍

‍

‍

‍

‍

‍

Disclosures

Purpose This research is only for the clients of BitOoda. This research is not intended to constitute an offer, solicitation, or invitation for any securities and may not be distributed into jurisdictions where it is unlawful to do so. For additional disclosures and information, please contact a BitOoda representative at info@bitooda .io. Analyst Certification 10 David Bellman, the research analyst denoted by an “AC” on the cover of this report, hereby certifies that all of the views expressed in this report accurately reflect his personal views, which have not been influenced by considerations of the firm’s business or client relationships. Conflicts of Interest This research contains the views, opinions, and recommendations of BitOoda. This report is intended for research and educational purposes only. We are not compensated in any way based upon any specific view or recommendation. General Disclosures Any information (“Information”) provided by BitOoda Holdings, Inc., BitOoda Digital, LLC, BitOoda Technologies, LLC or Ooda Commodities, LLC and its affiliated or related companies (collectively, “BitOoda”), either in this publication or document, in any other communication, or through http on or ://www.bitooda.io/, including any information regarding proposed transactions or trading strategies, is for informational purposes only and is provided without charge. BitOoda is not and does not act as a fiduciary or adviser, or in any similar capacity, in providing the Information, and the Information may not be relied upon as investment, financial, legal, tax, regulatory, or any other type of advice. The Information is being distributed as part of BitOoda’s sales and marketing efforts as an introducing broker and is incidental to its business as such. BitOoda seeks to earn execution fees when its clients execute transactions using its brokerage services. BitOoda makes no representations or warranties (express or implied) regarding, nor shall it have any responsibility or liability for the accuracy, adequacy, timeliness or completeness of, the Information, and no representation is made or is to be implied that the Information will remain unchanged. BitOoda undertakes no duty to amend, correct, update, or otherwise supplement the Information. The Information has not been prepared or tailored to address, and may not be suitable or appropriate for the particular financial needs, circumstances or requirements of any person, and it should not be the basis for making any investment or transaction decision. The Information is not a recommendation to engage in any transaction. The digital asset industry is subject to a range of inherent risks, including but not limited to: price volatility, limited liquidity, limited and incomplete information regarding certain instruments, products, or digital assets, and a still emerging and evolving regulatory environment. The past performance of any instruments, products or digital assets addressed in the Information is not a guide to future performance, nor is it a reliable indicator of future results or performance. All derivatives brokerage is conducted by Ooda Commodities, LLC a member of NFA and subject to NFA’s regulatory oversight and examinations. However, you should be aware that NFA does not have regulatory oversight authority over underlying or spot virtual currency products or transactions or virtual currency exchanges, custodians or markets. BitOoda Technologies, LLC is a member of FINRA. “BitOoda”, “BitOoda Difficulty”, “BitOoda Hash”, “BitOoda Compute”, and the BitOoda logo are trademarks of BitOoda Holdings, Inc. Copyright 2024 BitOoda Holdings, Inc. All rights reserved. No part of this material may be reprinted, redistributed, or sold without prior written consent of BitOoda.

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Natural Gas at Record Low Levels

Power Markets for Bitcoin Miners, 02/12/24

Key Takeaway #1

Key Takeaway #2

Key Takeaway #3

Key Takeaway #4

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