Exxon Plans to Sell Electricity to Data Centers

Firms like Exxon and Chevron plan to build gas fired electricity generation plants to meet the galloping demand for power of artificial intelligence ‘hyperscale’ data centers. The implications of this report in the New York Times for 12/11/24  is that the outlook for nuclear energy to power data centers is now facing competition from oil companies.

The earliest dates small modular reactors, or micro reactors, will be available to customers to power data centers is the end of this decade, or more likely, in the start of 2030 or even later. Data centers need power now.

This report from the New York Times provides details on efforts by Exxon Mobil and Chevron to build, own, and operate fossil fueled electric power generation plants that will directly support data centers.

Given that the time to deliver a gas fired power plant is less than half that of an SMR, and comes without the regulatory overhead of nuclear licensing, data centers grasping for any reliable source of power will likely flock like pigeons chasing popcorn on a city street corner to sign up for them.

Given the intense demand for power the AI “hyperscale” data centers are expected to need, it is no surprise that oil and gas producers are bypassing large nuclear utilities and seeking profits by being direct providers of power to AI driven data centers.

The ‘Times notes that Goldman Sachs projects that power demand from U.S. data centers would grow about 15% a year on average through the end of the decade. The numbers in terms of the need for power for data centers globally will increase by two and a half times current use by 2030.

Exxon told the newspaper it has secured land and was talking with potential customers about sites. The company also said it could have the power plant running within the next five years, e.g., by 2027, which is much faster than any new nuclear reactors could be built.

Sites and Grids

These projects may also set off new regulatory conflicts over grid connections v. private wire set ups for the fossil fueled plants depending on where they are located relative to the data centers. Exxon said its plant would not be connected to the electric grid.

So far neither Exxon nor Chevron have said where their gas fired power plants would be built. Both firms told the newspaper site selection decisions would be driven by customer demand.

“We’re being driven by the market demand here,” Dan Ammann, who leads the company’s low-carbon business, said in an interview with The New York Times. “It’s low carbon, it’s available on an accelerated timeline and it avoids all the grid interconnection challenges.”

Competitive Advantages of Gas Fired Plants for Data Centers

The two oil companies described in the ‘Times report, and others like it in terms of size and scale in the oil production and refining industries, have key advantages over small modular reactors.

• First, construction of natural gas plants for the generation of electricity is well understood with EPCs that have decades of experience building them. Plus, according to a May 2024 report by S&P Global the US has 133 new gas-fired plants in the works.
• Second, there is a mature workforce that has built these plants and can build them in the near-term.
• Third, the supply chain of systems and components, everything from turbines to transformers, are readily available within the five year timeframe it takes to bring one of these units online.
• Fourth, natural gas, is abundantly and cheaply available in the U.S. from the major pipelines that crisscross the nation.
• Fifth, regulatory reviews are relatively straightforward on a state-by-state basis. The cumbersome, time consuming, and costly NRC required federal environmental impact statements, with their endless opportunities for interventions, are not required for these plants. Anti-nuclear groups that have spent decades throwing spanners into the spokes of nuclear power plant projects can be expected to raises serious objections related to climate change about these developments.

Challenges Facing SMR Developers Seeking Data Center Customers

The nuclear energy industry, in the form of SMRs targeting the data center market, is facing an existential threat by the economic and logistical realities that give significant time to market advantages to the oil companies plans to build gas fired power plants for data centers.

Here is a list of factors of how the plans of SMR developers to acquire for market share of the date center power  industry will be affected by the new development of oil companies building gas fired power plants to provide electricity to data centers.

• First, by comparison with experience the gas industry has building power plants, none of the developers of small modular reactors have built one. The first of a kind units (FOAK) for SMRs are going to be characterized by expensive lessons to be learned necessary to get to achieve economies of scale of factory production building them in fleet mode. Data centers have no interest in being part of, much less paying for, that learning curve.
• Second, because none of the SMR developers have built their first much less a second or third plant, there is no experience among skilled trades in how to get an SMR built.
• Third, the expected suppliers of systems and components for SMRs are faced with a difficult chicken and egg dilemma. Do they ramp up production for customers that might turn out to be be cases of “one and done” due to the difficulties with their first of a kind projects?
• Fourth, many of the developers of advanced SMRs plan to use HALEU fuel the U.S. supply of which is so significantly delayed that TerraPower delayed its schedule for its first plant by two years. DOE’s recent contract awards for HALEU and uranium enrichment will take years for firms winning them to achieve full production.
• Fifth, every SMR will require two-to-four years to complete the NRC licensing process before it can pour its first concrete.

Data Centers Rethink Power Purchase Agreements with Nuclear Utilities

SMR developers are not alone in facing the expected competition from oil companies building gas fired power plants for data centers. Nuclear utilities planning uprates of existing reactors, or even new full size plants, to offer power purchase agreements to the big IT platforms may need to take a second look at their Integrated Resource Plans.

According to the ‘Times report, Exxon’s plans for its first gas fired plant is 1,500 MW which is larger than the Pennsylvania reactor Constellation is planning to restore to service to supply power to Microsoft related date centers.

Early adopters of SMRs among the big IT platforms like Amazon, Google, and META might pivot some of their expectations about following up on their early investments. They may shift to seeing SMRs, and nuclear energy in general, as longer term options given the near term likelihood of gas fired power plants coming online much sooner than conventional or advanced SMRs or uprated existing reactors. The net result is that the timeline for wide scale adoption of nuclear energy as a source of power for date centers could be pushed back well into the 2030s or beyond.

International Implications of Exxon’s Plans

The Bloomberg wire service reports from Tokyo, Japan, that the rise of artificial intelligence will drive a surge in electricity demand in that country that’ll initially be met by fossil fuels, before nuclear energy replaces is as a source.

According to the World Nuclear Association, until 2011, Japan was generating some 30% of electricity from its reactors and this was expected to increase to at least 40% by 2017. The plan is now for at least 20% by 2030, from a depleted fleet.  So far 13 reactors have restarted. 12 reactors are currently in the process of restart approval. The timeframe for future restarts for these units is literally all over the map given the stringent regulatory requirements, as well as local approvals, that are needed to return them to revenue service.

This new estimate comes from Dale Klein, the former Chairman of the U.S. Nuclear Regulatory Commission, who is in Japan this month in his role as an adviser to Tokyo Electric Power Co. Klein made his remarks in an interview on Bloomberg TV

Klein said the rapid global adoption of AI has triggered a boom in demand for the energy to power data centers.  Klein said that given the supply of electricity in Japan, which still has not restarted the majority of its nuclear reactors, there may be a strain put on the nation’s grid to meet demand.

While Klein acknowledged that fossil fuels will in the near term be the energy source of choice to power date centers, he held out the possibility that eventually nuclear power would be used.

He told Bloomberg TV even in the US — where there’s bipartisan political support for atomic energy — gas will be used to address the boom in power demand from AI, before small, modular reactors and larger plants can be built

“We just cannot meet this big demand for these data centers without nuclear plant, if we’re going to maintain a reduction in greenhouse gases,” Klein said.

“At the end of the day, if Japan is going to maintain their manufacturing supply chain, and all of their activities, they are going to have to have more and more electricity,” Klein said.

What’s happening overall in  the US will be closely watched in other countries where natural gas is cheap and the path to nuclear energy is a long road ahead.

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