As the tech industry invests more heavily in data centers for the growing Artificial Intelligence (AI) market, natural gas will be essential to meet surging electricity demand.
According to Wells Fargo, electricity demand is forecast to grow as much as 20 percent by 2030 due to the rise in AI. The oil and natural gas industry is poised to meet that demand – Goldman Sachs projects that natural gas will supply 60 percent of the power demand growth from AI and data centers by 2030, whereas renewables will provide the remaining 40 percent.
How does the increase in AI development impact power demand?
As Fast Company reports, the growing AI market is putting increased strain on the grid – and at a much more rapid pace than previously anticipated:
“Last year, the five-year forecast from Grid Strategies projected growth of 2.6%. That number has since nearly doubled to 4.7%—and planners expect peak demand to grow by 38 gigawatts. That’s equivalent to the amount needed to power 12.7 million homes, a bit more than the total number of housing units in Texas.
“Perhaps even more concerning, experts say that’s likely an underestimate of what the actual need will be, saying they expect the next forecast (in December of this year) to show an even higher nationwide growth rate.
“’The U.S. electric grid is not prepared for significant load growth,’ Grid Strategies warned.” (emphasis added)
Wells Fargo anticipates that AI data centers alone will add approximately 323 terawatt hours of electricity demand in the U.S. by 2030. As Well Fargo explains, this increase is presenting unique challenges for the power sector because these facilities use much higher amounts of energy:
“AI-focused data centers typically use more expensive servers to train large language models compared to traditional enterprise servers. […] The compute-intensive nature of generative AI workloads compared to traditional information technology (IT) workloads is presenting new challenges for overall IT infrastructure, particularly in the form of higher levels of energy consumption.”
Goldman Sachs forecasts that data centers will make up 8 percent of the total U.S. power demand by 2030, from about 3 percent in 2022.
Energy abundance should be a key election issue. GOLDMAN SACHS expects “US power consumption growth to accelerate sharply to an annual average 2.4% pace in 2024-2030, boosted by data centers, AI, and EVs.”
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— James Pethokoukis
(@JimPethokoukis) May 14, 2024
Natural gas is a reliable solution
Because of the high reliability and lower cost of gas compared to other resources, an abundance of natural gas in a region has become an attractive selling point for major companies looking to build out data centers. This is evident in the rise in data centers in natural gas-rich states like Texas and Ohio. As Coterra COO Blake Sirgo recently said:
“Lots of the demand looks like it’s going to come on the East Coast. That’s very proximal to our assets. There’s a lot of existing pipes there that can easily get our gas to those markets. And we’re very interested. We’re talking to a lot of these folks directly trying to understand their business and their needs.”
In fact, natural gas demand is expected to increase by 3.3 billion cubic feet per day (bcf/d) by 2030, according to Goldman Sachs, and Tudor Pickering Holt & Co published that as much as an additional 8.5 bcf/d could be required to match the rise in demand. Coterra CEO Tom Jordan said he’s even heard as much as a 30 bcf per day increase will be needed by 2030, adding that “we will welcome increased demand anywhere within that range.”
As Energy Capital Partners’ Founder Doug Kimmelman recently emphasized, expanding gas-fired generation to supply energy to data centers will be critical:
“Gas is the only cost-efficient energy generation capable of providing the type of 24/7 reliable power required by the big technology companies to power the AI boom.”
And Bob Hader, founder, CIO and partner of Proficio Capital Partners, wrote in Forbes:
“The solution lies beneath the earth’s surface, particularly in regions like the Haynesville basin spanning East Texas and Louisiana: good old American natural gas.” (emphasis added)
Hader continued:
“According to Thunder Said Energy, by 2030, power consumption for AI data centers just in the US could skyrocket to 400 terawatt-hours annually, equivalent to approximately 1.3 trillion cubic feet of gas per year or 3.6 billion cubic feet per day. To contextualize, in 2023, the United States produced 104 billion cubic feet of natural gas per day. Meeting this escalating demand is likely to necessitate increased drilling activity across the country.
“In my view, natural gas stands out as the most cost-effective and reliable alternative to coal for power generation.” (emphasis added)
Similarly, Chevron CEO Mike Wirth told CNBC:
“It’s a little hard to quantify right now because this is evolving so quickly on the AI side [..] But I think demand for natural gas is likely to be higher than what people have been estimating up until now. […] You come back to natural gas as the most likely source of that reliable baseload supply.”
And Richard Kinder, executive chairman of Kinder Morgan, said:
“The primary use of these data centers is big tech and I believe they’re beginning to recognize the role that natural gas and nuclear must play.”
This was a major topic at CERAWeek in March, with EQT CEO Toby Rice telling attendees that he was repeatedly asked: “How fast can you guys move? How much gas can we get?”
Rice told the Wall Street Journal:
“Tech is not going to wait seven to 10 years to get this infrastructure built. That leaves you with natural gas.”
Bottom line: The growth in AI and the data centers to power it are spurring exciting investment opportunities across the country, turning states like Georgia, Texas and Ohio into this decade’s new Silicon Valleys. But with this tremendous growth opportunity also comes significant challenges, most notably the incredible amount of energy that will be needed to power these facilities. Natural gas is already used in more than 43 percent of U.S. electricity generation, putting the U.S. oil and gas industry ahead of the game in supporting critical technologies with reliable, affordable energy.
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