August 10, 2021
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 called “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.”
“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.
In a statement, a spokesperson with Alberta Environment and Parks said the provincial government was “encouraged that we continue to attract new investments from around the globe that support a diversified economy.”
“Alberta has also significantly reduced electricity emissions since 2007 as one of the first jurisdictions in the world with an emissions compliance framework while emissions in countries like China increased,” said Paul Hamnett in a statement.
“Our oil and gas industry is at the forefront of innovation and a diversified energy future with emerging opportunities like hydrogen, helium, geothermal development and petrochemicals.”
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.