Three natural gas-producing sites in southern Alberta could host “up to one million” bitcoin mining machines relocated from China under a deal proposed by Nevada-based Black Rock Petroleum Company amid Beijing’s ongoing crackdown on cryptocurrency production and trading.
Bitcoin is a digital currency that can be sent between users without the need for a central bank, leveraging blockchain technology to maintain a decentralized ledger of transactions. Bitcoin’s value has spiked in the last year.
The process of unlocking new bitcoin to add to the existing supply is calling “mining.” This requires the use of computers with powerful processors in an energy intensive process.
No timeline for the deal was immediately announced, though the contract term for using the natural gas sites is listed as 24 months, according to a press release from Black Rock Petroleum Company.
Earlier this year, Chinese authorities cracked down on bitcoin mining due to apparent environmental concerns and other issues, ordering miners to shut down.
Up to one million mining machines, or rigs, entering Alberta would represent a significant chunk of China’s prior total mining capacity, experts say, with major impacts in energy consumption in the province.
Alex de Vries, a researcher and economist who runs the cryptocurrency analytics website Digiconomist, said the move to Alberta would represent a multi-billion dollar investment using fossil fuels as a power source.
“In China, they were using hydroelectric power for at least part of the year, and then the rest of the year they would be using Chinese coal, instead,” he said of the energy source powering the computers used in the mining process.
“But if they’re coming to Alberta and start running on natural gas all year round, it’s not improving the situation of this network, which is already responsible for more CO2 emissions than we are saving with all electric vehicles around the world combined.”
As of Aug. 9, a single bitcoin was worth more than $46,000 US and the total market supply was worth more than $866 billion US, according to the price tracking website CoinMarketCap.
Proposal represents 1/3 of global mining capacity: expert
It’s difficult to definitively determine how many computers make up the global bitcoin mining network; de Vries pegs that number at around three million.
In other words, the one million machines supposedly destined for Alberta could represent around a third of global mining capacity.
Though he’s skeptical of the “astronomical” figures proposed in Alberta, Brandon Arvanaghi, a U.S.-based bitcoin mining engineer who is not connected with the Alberta project, said the full impact of China’s crackdown is not yet fully understood.
“Basically, every North American miner has started ramping up every facet of their mining operation. They’ve raised more money, they’ve procured more power, they’ve gotten more land, and they’re ready to scale up,” Arvanaghi said.
“As these new miners come in [to North America], you see more jobs coming in, IT staff, electricians, campus managers.”
Bitcoin processors can connect to the electricity grid or directly to an energy producer, such as a natural gas plant, to power their computer network.
While bitcoin miners tend to gravitate toward the cheapest sources of electricity, Arvanaghi said there are benefits to natural gas producers, too. Certain bitcoin mining companies utilize flare gas from oil drilling, saving it from being burned.
Black Rock Petroleum Company, not to be confused with BlackRock, the giant New York-based investment firm, said in a release that the first 200,000 mining units would be hosted at the Quirk Creek gas plant, located near the southwestern hamlet of Millarville, Alta.
For a mining unit, picture a powerful computer with cooling fans. Each individual unit might not look too different from your home desktop PC processor — but the guts of this hardware are specifically designed to handle intensive and heavy-duty computing work.
It’s unclear what the project could mean for Alberta’s tax base. Black Rock said the site would be staffed by Chinese and English speaking technicians and other employees, but it’s unclear how many jobs the project would entail.
The logistics of bringing such a large number of mining rigs to rural Alberta would be challenging, Arvanaghi said.
“To facilitate that, you need a lot of land, you’ll probably need a substation, you’ll need internet connectivity out there, a lot of staff who know how to operate these miners … basically, there’s a lot of things that can go wrong with this.”
The Quirk Creek plant is operated by Calgary-based Caledonian Midstream Corporation, which was acquired by Black Rock in early July.
Charles Selby, president of Caledonian, said in an email that the company had entered into a non-binding letter of intent with Black Rock, which is subject to financing and other conditions.
Significant hurdles to clear
At this stage, Quirk Creek may not be equipped to handle the demands such a significant number of bitcoin processors would require.
“Given our current gas production, a more reasonable number of miners would be 10,000 rather than the 200,000 referenced in the press release,” Selby said.
In a brief phone call, Black Rock chief executive officer Zoltan Nagy said additional energy generation to meet the company’s needs would be achieved by adding generators to the site.
Nagy said additional details surrounding the financials of the deal would be forthcoming. Conducting a full interview at this time was premature, he said.
He said his company had been pursuing the purchase of Caledonian before the opportunity to relocate the Chinese bitcoin units arose.
The top end of Black Rock’s projections — one million mining machines — would suck up a gigantic amount of power in Alberta.
De Vries, the founder of Digiconomist, said depending on the exact equipment type, those machines would need between one gigawatt (GW) to 3.5 GW of power — which, by de Vries’s calculations, would take up roughly 10 to 30 per cent of the total natural gas-based electricity production in Alberta.
“What they would need would represent such an enormous part of the power available in Alberta,” de Vries said, adding that such projections make him skeptical of the plan as stated.
Power plants in Alberta cannot be constructed or operated without approval from the Alberta Utilities Commission (AUC), and the province has other rules governing the production of electric energy.
The Quirk Creek plant would almost certainly need approval from the AUC to host the bitcoin machines.
Nagy said Black Rock hasn’t reached out to provincial representatives but said the company was looking into it.
Questions around finances
Far more than a few computer towers in an office building, the sheer size of bitcoin mining facilities can be surprising. For example, in 2018, at the grand opening of Hut 8, a bitcoin mine in Medicine Hat, Alta., the facility started with 56 shipping containers each filled with 180 computer servers, operating around the clock.
Black Rock Petroleum’s filings with the U.S. Securities and Exchange Commission are limited, so its financial status is difficult to ascertain.
Alfred Lehar, an associate professor studying finance at the Haskayne School of Business at the University of Calgary, said it’s hard to know definitively whether there is enough financial backing to make this deal happen.
“It’s certainly a very junior company that does not have a lot of assets compared to big energy companies that we are used to here,” Lehar said.
Under the terms of the Quirk Creek agreement, Black Rock’s press release said, Black Rock would work in partnership with China-based Optimum Mining Host Ltd. (OMH), which would cover many of the costs anticipated to arise out of the arrangement.
Josh Goodbody is chief operating officer of Qredo, another cryptocurrency firm and a mining expert who used to work in China who has no connection to the Alberta project. He said consortiums of miners moving into North America have become increasingly common after China’s crackdown.
WATCH | Engineer Brandon Arvanaghi discusses the recent exodus of bitcoin miners from China:
“Domestic miners [have] to internationalize themselves, set up an offshore or global presence, and do that in a place like North America,” Goodbody said. “And [then], bring all of their hardware along with them.”
According to Black Rock Petroleum, OMH would be responsible for providing 24/7 armed security guards at the site “with enforcement power.”
Concerns over environmental impacts
Even if Black Rock Petroleum’s proposal does not live up to its billing, the act of pairing natural gas and bitcoin mining is no new phenomenon.
Saeed Kaddoura, an analyst with the environmental think-tank Pembina Institute, called bitcoin mining a “parasitic process” — one that he characterized as being “energy gluttonous [while chasing] the cheapest electricity around the world.”
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“We should be looking at the underlying technology of blockchain, and how can we utilize that to develop [the] technological sector in Alberta that supports the oil and gas industry,” he said.
“But bitcoin mining in itself, I don’t think that’s something we should be attracting without any oversight.”
As a way to store data securely, the blockchain is a decentralized ledger shared across multiple computer systems that publicly shares all transactions. Bitcoin uses the blockchain.
CBC News reached out to Alberta Environment and Parks to inquire about environmental considerations when it comes to bitcoin mining in the province, but did not receive a response by press time.
On Monday, the UN climate panel sounded a dire warning, cautioning “irreversible” climate impacts and warning that humans were dangerously close to runaway warming.
De Vries of Digiconomist said that report raised warning flags for bitcoin mining projects around the globe.
“Even if these miners are not going to be in Alberta, they will probably end up in different locations, where they will probably run on fossil fuels regardless,” he said.
Rogers, Shaw formalize planned Freedom sale to Quebecor – BNN Bloomberg
Rogers Communications Inc., Shaw Communications Inc. and Quebecor Inc. announced Friday they reached a definitive agreement for the previously-announced proposed sale of Shaw’s Freedom Mobile wireless business.
The three companies said that the terms of the definitive pact are “substantially consistent” with their original announcement on June 17, when they said Montreal-based Quebecor agreed to pay $2.85 billion to purchase Freedom. Originally, July 15 was the target to reach the definitive agreement.
“We are very pleased with this agreement, and we are determined to continue building on Freedom’s assets,” said Quebecor president and chief executive officer Pierre Karl Péladeau in a release Friday. “Quebecor has shown that it is the best player to create real competition and disrupt the market.”
The transaction is conditional on Rogers receiving final regulatory approvals for its planned $20-billion takeover of Shaw, which was announced in March 2021.
The road to regulatory approval has become more treacherous for Rogers after Competition Commissioner Matthew Boswell stated his objections to the plan, warning it would diminish competition in the telecom market, notwithstanding Rogers’ long-stated intent to divest Freedom Mobile.
Rogers’ legal counsel has argued vociferously against Boswell’s claims, saying in a June 3 filing with the Competition Tribunal that Boswell’s stance “is unreasonable, contrary to both the economic and fact evidence presented to the Bureau, and not supportable at law.”
The Competition Tribunal is currently scheduled to begin a hearing on the matter Nov. 7.
Rogers also has to clear another regulatory hurdle: its planned acquisition of Shaw requires approval from Innovation, Science and Industry Minister François-Philippe Champagne, who has previously said he won’t allow the wholesale transfer of Shaw’s wireless assets to Rogers.
The process became more complicated for Rogers after a national network outage knocked out service to its customers in early July.
Champagne subsequently said the outage would “certainly be in [his] mind” when weighing the merit of the Shaw sale.
For its part, the Canadian Radio-television and Telecommunications Communications announced its conditional approval of the transaction in March.
Shaw investors have consistently demonstrated skepticism that the deal will go ahead as planned, as evidenced by its shares never once attaining the $40.50-per-share takeover offer from Rogers since the takeover was announced last year.
Investors refuse to accept higher rates are here to stay – and that's a problem for financial markets – The Globe and Mail
With interest rates rising, and rapidly so, the driving force that dictated decision making in financial markets for the past fifteen years is dying out. In a flash, disoriented investors have been exposed to a new world, one that demands dramatically different expectations for what constitutes a decent return.
Yet for all that’s changed, it can be tough to accept the era of ever-lower rates is truly over. Deep down there may be a tacit acknowledgment of changing winds, but it is often coupled with denial about what this all means.
The hope, it seems, is that the damage has already been done. Technology stocks have been clobbered, and house prices have finally started falling in Canada. But the undertow generated by rising rates is hard to contain, and for that reason it will likely ripple through financial markets, hitting everything from private equity to blue-chip stocks.
Such a sea change can be hard to grasp. Since the 2008-09 global financial crisis, investors of all stripes have grown accustomed to ever-falling interest rates. By July, 2020, the yield on the 10-year U.S. Treasury bond, a benchmark for financial markets, had dropped to a paltry 0.52 per cent.
The trend was so absurd, such a deviation from historical norms, that it even spawned a new mantra: “lower for longer.” Investors learned to accept that rates would stay low for longer than once thought imaginable – and it lasted for so long that it became the norm.
And now, in just seven months, it’s all changed, after scorching inflation and geopolitical earthquakes forced a paradigm shift. In July, the Bank of Canada raised its benchmark rate by a full percentage point, something not seen since 1998. The Federal Reserve hiked its own by 0.75 percentage points a few weeks later.
The reaction since has been quite bizarre. The Nasdaq Composite index for one, a barometer for growth stocks, is up 23 per cent from its June low. Investors seem to think the worst is behind us, and they’re happy to return to the way things were.
The reality: It is highly likely that there is no going back, at least not for quite some time.
“Many economists, strategists and investors are thinking the world hasn’t changed – that we’re in a normal cycle,” said Tom Galvin, chief investment officer at City National Rochdale, a subsidiary of Royal Bank of Canada with roughly US$50-billion in assets under management. He disagrees. “We are in a new era.”
This summer, Mr. Galvin put out a paper that spelled this all out, explaining why the new mantra must be ‘higher for longer.’
“Inflation will be higher for longer than we anticipated, interest rates will be higher for longer, geopolitical tensions and uncertainty will be higher for longer and high volatility in the economy and financial markets will be higher for longer,” he wrote.
Of course, Mr. Galvin is only one voice, and everything in economics and finance is so chaotic right now that it’s near impossible to call anything with 100 per cent certainty. In Canada, inflation is at its highest level in nearly 40 years, yet unemployment is at a record low. That isn’t supposed to happen.
But in the past two weeks a spate of Federal Reserve officials have given public interviews saying much the same.
The day after stock markets rallied this week on the back of news that month-over-month U.S. inflation was flat in July, Mary Daly, president of the San Francisco branch of the Federal Reserve, told the Financial Times that investors shouldn’t be so giddy. While the data was encouraging, core prices, a basket that strips out volatile items such as energy costs, still rose. “This is why we don’t want to declare victory on inflation coming down,” she said. “We’re not near done yet.”
Diane Swonk, chief economist at KPMG, can’t quite understand why investors are forgetting what scares the Fed the most: inflation. One of the central bank’s biggest failures in the past 50 years was allowing U.S. inflation to grow out of control – or ‘entrenched,’ in economics parlance – in the 1970s, forcing the Fed to eventually take drastic action to bring it back in line.
“This is a Fed that remembers the seventies,” Ms. Swonk said. “Most people operating in financial markets don’t.” Especially not the twenty- and thirty-something retail traders who sent stock markets soaring in 2021.
Fed officials can’t say outright they’ll tolerate a recession as a trade off for squashing inflation, but the eighties is proof they have and they will. “They’re going to raise rates and hold it for a while to grind inflation down,” Ms. Swonk predicts.
Despite the history, there is still speculation in certain corners of the financial markets that the Fed will change course. And there are some recent precedents of doing so. Twice over the past decade, the Fed and the Bank of Canada signalled they were ready to take action to cool the economy, but both times the central banks ultimately backed off. They did so first in 2013, after bond investors freaked out, and then again in 2019.
The big difference between now and then is inflation. Even Mike Novogratz, one of the most popular investors in cryptocurrencies, the mother of all speculative assets, warned in the spring that rates won’t be falling any time soon. “There is no cavalry coming to drive a V-shaped recovery,” he wrote in a letter to investors after the crypto market crashed, referencing the quick stock market rebound after the pandemic first hit. “The Fed can’t ‘save’ the market until inflation falls.”
Predicting precisely how financial markets will be impacted by higher rates is hard, but just like unprofitable technology stocks, the asset classes that benefitted the most from the low rate world are those most susceptible to tremors. Private equity and private credit, to name two, are near the top of the list.
When debt was ultra cheap, private equity funds could fund their buyouts for next to nothing. At the same time, passive investing was gathering steam, taking the shine off hedge funds and mutual funds. Private equity, then, became a vehicle for outsized returns.
Earlier this year, Harvard Business School professor Victoria Ivashina wrote a paper predicting a shake out in the sector, arguing that these tailwinds aren’t there anymore. “As the flow of funds into private equity stabilizes and as the industry growth slows down, the fee structure will compress and compensation will shift to be more contingent on performance,” she wrote.
Already there are signs that major investors are moving away from private equity. Earlier this month, John Graham, chief executive of Canada Pension Plan Investment Board, one of the world’s largest institutional investors, disclosed that CPPIB saw more value in public markets than private ones for now. And in a July report, Jefferies, an investment bank, wrote that major money managers, including pension and sovereign wealth funds, had sold US$33-billion worth of stakes in buyout and venture capital funds in the first half of the year, the most on record.
Private debt funds, which lend money to higher risk borrowers, are also vulnerable in the current environment. Money poured into the sector over the past five years because these investment vehicles tend to pay 8-per-cent yields, but that return looks much less rosy now that one-year guaranteed investment certificates pay nearly 4.5 per cent.
By no means are these asset classes dead in the water. The same goes with stocks and so many others. Rates have jumped, and quickly, but they are still low by historical standards.
However, there are many reasons why investors of all stripes should not be expecting a quick return to lower for longer. The latest inflation data is encouraging, but it’s a single data point. Who knows what type of energy crisis Europe and the United Kingdom will face this winter, and what that will do to oil and gas prices.
Inflation also isn’t known to disappear quickly. “It’s easy to get from 6-per-cent core inflation to 4 per cent,” Ms. Swonk, the economist, said. “It’s really hard to get from 4 per cent to 2 per cent.”
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German Chancellor Olaf Scholz coming to Canada to meet with Trudeau, business leaders
OTTAWA — The Prime Minister’s Office says Justin Trudeau will accompany the chancellor of Germany, Olaf Scholz, on a brief Canadian visit later this month that will include stops in Montréal, Toronto and Stephenville in western Newfoundland.
In a statement released Saturday, the PMO confirmed the Aug. 21-23 visit starts in Montreal, where meetings will be held with German and Canadian business leaders, and a tour is scheduled at an artificial intelligence institute.
The two men will then head to Toronto, where Trudeau will take part in the virtual summit about Russia’s annexation of Crimea, followed by an appearance at the Canada-Germany Business Forum.
The trip will conclude with a stop in Stephenville, N.L., where Trudeau and Scholz will attend a hydrogen trade show.
The statement says the two men intend to talk about clean energy, critical minerals, the automotive sector, energy security, climate change, trade and Russia’s “illegal and unjustifiable invasion” of Ukraine.
The prime minister and chancellor last met in June at the G7 Summit in Germany.
This report by The Canadian Press was first published Aug. 13, 2022.
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