U.S. Natural Gas Producers and Shippers to Benefit from AI-Driven Power Demand Surge
The United States is emerging as a major beneficiary of the rapid advancements in artificial intelligence (AI) technology. Amidst the proliferation of data centers essential for AI development, the demand for natural gas is projected to rise significantly, boosting both demand and prices. Investment bank Tudor, Pickering, Holt & Co. forecasts that this surge in power consumption will necessitate an additional 8.5 billion cubic feet per day (Bcf/d) of natural gas by 2030, potentially driving prices to an average of $4 per million British thermal units (MMBtu).
The growing electricity needs of data centers are driving demand for natural gas, despite the preference of many tech companies for renewable energy sources such as solar and wind. The urgency to establish and power these data centers swiftly is fueling the need for natural gas as a reliable energy source. This development casts doubt on the Biden Administration’s aspiration to transition to a zero-carbon electricity grid by 2035, especially in light of the escalating power demand, which has reversed years of declining or stagnant electricity consumption.
Natural gas producers are already preparing to meet this rising demand by curtailing some output during the current market glut and anticipating increased production later in the year. Leading producers like EQT Corporation and Chesapeake Energy, along with pipeline giants Energy Transfer, Williams Companies, and Kinder Morgan, are expected to capitalize on the surge in power demand and elevated natural gas prices.
Kinder Morgan recently expressed optimism about the long-term outlook for its natural gas transportation business, despite the current low prices. The company anticipates significant growth in U.S. natural gas demand by 2030, driven by expanding LNG exports and increased exports to Mexico. Notably, Kinder Morgan also recognizes the emerging demand for natural gas in the generation of electricity for AI operations, cryptocurrency mining, and data centers.
U.S. natural gas producers are confident in their ability to supply the increasing demand from data centers and AI technologies. According to industry executives, natural gas, which currently accounts for 43.1% of U.S. utility-scale electricity generation, will continue to play a significant role even as renewable capacity grows, as new renewable installations necessitate backup power sources.
The substantial electricity consumed by data centers has prompted U.S. utilities and regulators to significantly revise their peak power demand forecasts for the coming decade. After a period of flatlining power consumption in the United States, the AI boom and the manufacturing of chips and other technologies are contributing to higher electricity demands. According to research from Lawrence Berkeley National Laboratory, nearly 2,600 gigawatts (GW) of generation and storage capacity are currently seeking grid interconnection.
While many tech companies express a preference for clean energy sources to power their data centers, utilities are facing challenges in meeting this demand. Consequently, some utilities in the eastern and southern United States are considering constructing new natural gas-fired capacity alongside renewable energy sources to accommodate the growing electricity consumption from data centers.
