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FTX Fiasco Shows Crypto’s No Green-Grid Hero

Welcome to Elements, our daily energy and commodities newsletter. Today, Bloomberg Opinion’s Liam Denning looks at the collapse of FTX and crypto’s fraught energy ties. In markets, oil took a brief leg up after a tanker was attacked off Oman, while a key pipeline to Europe was shut Tuesday after its power source was knocked out. If you haven’t yet signed up to get Elements directly into your inbox, you can do that here.

Today’s Take: Bitcoin’s Power Failure

The spectacular flameout of FTX reminds us that you can’t spell “cryptomania” without “pyromania.” Just as $16 billion seemingly going *poof* isn’t likely to advance the long-anticipated mainstreaming of Bitcoin et al., it should also be prompting some soul-searching about crypto’s relationship with energy.

Stung by criticism over Bitcoin’s voracious electricity consumption, some miners repositioned as green grid champions. They argue that mining adds demand, thereby incenting new (renewable) capacity, and can helpfully ramp down when the network is strained. Texas, with  visceral experience of a strained power system, has become the US epicenter of this, with enough miners applying for grid hookups there to boost demand by 33 gigawatts — enough to supply all of New York state.

Even before the latest crypto debacle, there were issues with such thinking. As Severin Borenstein of UC Berkeley has written, a miner committing to reduce demand when supply is tight will, conversely, mostly consume when supply is abundant. So where’s the incentive for new capacity? It may instead just keep existing plants running for longer than they might have (as seen already in Pennsylvania).

Power consumption for Bitcoin mining worldwide appears to have dropped by roughly a sixth since FTX began imploding. At Bitcoin’s current level of about $16,000, miners’ breakeven electricity price is about $100 per megawatt-hour, estimates Joshua Rhodes of UT Austin. That’s still quite a bit higher than spot prices in Texas of about $60-70 per megawatt-hour, suggesting margins have been squeezed rather than vaporized altogether. 

Against that, the past week’s debacle raised a bigger issue. The drama of FTX seeking another crypto exchange to take on its so-called balance sheet of self-generated coins demonstrates the essential limitations of crypto’s closed, and hollow, ecosystem. In Noah Smith’s genius phrase, it is “an ouroboros of speculation.” What power-project developer signs a long-term supply contract based on that? What responsible grid operator would encourage it? Texas, with its vast wind and solar resources, is certainly primed for some sort of exciting technology to help green its grid while also stabilizing it. I hear batteries are pretty useful.

--Liam Denning, Bloomberg Opinion

Chart of the Day

It isn’t just Russian oil taking a haircut; heavy crude out of Alberta trades at under $60 a barrel. Western Canada Select’s discount to West Texas Intermediate has blown out in 2022 to its widest since late 2018. Back then, a combination of pipeline bottlenecks and heavy refinery maintenance in the Midwest put the squeeze on Canadian barrels. This year, the likeliest culprit is south of the border, albeit also an offshoot of Russia’s disruption: competing heavy, sour barrels flowing from the Strategic Petroleum Reserve.

Today’s Top Stories

An oil tanker linked to an Israeli billionaire was attacked with a rocket off Oman on Tuesday night. The Pacific Zircon was struck roughly 150 miles from the coast, according to the vessel’s owner. Meanwhile, the Druzhba oil pipeline to Europe was shut after its power source was knocked out by a strike on Ukraine.

The European Union’s executive is considering proposing a maximum price ceiling for one of the world’s biggest natural gas hubs to help contain an unprecedented energy crisis and meet the demands of governments calling for the controversial tool.

A two-year buying frenzy in the world’s biggest lithium market is showing tentative signs of cooling off into the end of 2022 as huge increases in demand from China’s electric-vehicle sector begin to moderate.

Oz Minerals Ltd. requested a trading halt pending an announcement in relation to a potential change-of-control transaction, three months after the copper miner rejected an A$8.4 billion ($5.7 billion) bid by BHP Group Ltd.

Food prices will probably decline next year, even as global crop stockpiles stay very tight, said David MacLennan, chief executive officer of Cargill Inc., America’s largest private company.

Best of the Rest

• The world needs to investigate a “Plan C” for the climate — involving geoengineering of the oceans and atmosphere — in case the energy transition proves too slow, former BP Plc chief John Browne writes in an op-ed in the Financial Times. 

• Four wheels good, two wheels better. While everyone obsesses over Teslas, F-150 Lightnings and Lucid Airs, this feature from Protocol draws attention to the electrification opportunity in motorbikes and scooters, focusing on Taiwan.

• With carbon capture technologies in line for expanded subsidies from the US Inflation Reduction Act, Andrew Campbell of UC Berkeley’s Energy Institute at Haas argues for proactive federal and state regulations to address associated risks around pipelines, groundwater and seismic activity.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Liam Denning is a Bloomberg Opinion columnist covering energy and commodities. A former investment banker, he was editor of the Wall Street Journal’s Heard on the Street column and a reporter for the Financial Times’s Lex column.

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