AI could drive a natural gas boom as power companies face surging electricity demand

Natural gas producers are planning for a vital spike in demand over the subsequent decade, as synthetic intelligence drives a surge in electricity consumption that renewables could battle to satisfy alone.

After a decade of flat power development within the U.S., electricity demand is forecast to develop as a lot as 20% by 2030, in keeping with a Wells Fargo evaluation printed in April. Power companies are shifting to shortly safe power as the rise of AI coincides with the growth of home semiconductor and battery manufacturing as effectively as the electrification of the nation’s automobile fleet.

AI information facilities alone are anticipated so as to add about 323 terawatt hours of electricity demand within the U.S. by 2030, in keeping with Wells Fargo. The forecast power demand from AI alone is seven occasions better than New York City’s present annual electricity consumption of 48 terawatt hours. Goldman Sachs initiatives that information facilities will signify 8% of complete U.S. electricity consumption by the tip of the last decade.

The surge in power demand poses a problem for Amazon, Google, Microsoft and Meta. The tech companies have dedicated to powering their data centers with renewables to slash carbon emissions. But photo voltaic and wind alone could also be insufficient to satisfy the electricity load as a result of they’re depending on variable climate, in keeping with an April be aware from consulting agency Rystad Energy.

Surging electricity masses would require an power supply that may leap into the breach and meet spiking demand throughout circumstances when renewables are usually not producing sufficient power, in keeping with Rystad. The natural gas business is betting gas will serve as the popular selection.

“This type of need demonstrates that the emphasis on renewables as the only source of power is fatally flawed in terms of meeting the real demands of the market,” Richard Kinder, govt chairman of pipeline operator Kinder Morgan, instructed analysts in the course of the firm’s first-quarter earnings in April.

“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,” Kinder stated in the course of the name. Kinder Morgan is the biggest natural gas pipeline operator within the U.S. with 40% market share.

Natural gas is predicted to provide 60% of the power demand development from AI and information facilities, whereas renewables will present the remaining 40%, in keeping with Goldman Sachs’ report printed in April.

Gas demand could enhance by 10 billion cubic toes per day by 2030, in keeping with Wells Fargo. This would signify a 28% enhance over the 35 bcf/d that’s at present consumed for electricity technology within the U.S, and a 10% enhance over the nation’s complete gas consumption of 100 bcf/d.

“That’s why people are getting more bullish on gas,” stated Roger Read, an fairness analyst and one of many authors of the Wells Fargo evaluation, in an interview. “Those are some pretty high growth rates for a commodity.”

The demand forecasts, nevertheless, fluctuate as analysts are simply beginning to piece collectively what information facilities would possibly imply for natural gas. Goldman expects a 3.3 bcf/d enhance in gas demand, whereas Houston-based funding financial institution Tudor, Pickering, Holt & Co. sees a base case of two.7 bcf/d and a excessive case of 8.5 bcf/d.

Power companies will want power that’s dependable, inexpensive and will be deployed shortly to satisfy rising electricity demand, stated Toby Rice, CEO of EQT Corp., the biggest natural gas producer within the U.S.

“Speed to market matters,” Rice instructed CNBC’s “Money Movers” in late April. “This is going to be another differentiator for EQT and natural gas to take a very large amount of this market share.”

EQT is positioned to develop into a “key facilitator of the data center build-out” within the Southeast, Rice instructed analysts on the corporate’s earnings name in April.

The Southeast is the most well liked information heart market on the planet with Northern Virginia within the thick of the boom, internet hosting extra information facilities than the subsequent 5 largest markets within the U.S. mixed. Some 70% of the world’s internet traffic passes by means of the area every day.

The power firm Dominion Energy forecasts that demand from information facilities in Northern Virginia will more than double from 3.3 gigawatts in 2023 to 7 gigawatts in 2030.

Further south, Georgia Power sees retail electricity gross sales rising 9% by means of 2028 with 80% of the demand coming from information facilities, stated Christopher Womack, CEO of Georgia Power’s father or mother Southern Company, in the course of the utility’s fourt-quarter earnings name in February.

“Economic growth, electrification, accelerating data center expansion are driving the most significant demand growth in our company’s history and they show no signs of abating,” Dominion CEO Robert Blue stated in the course of the firm’s March investor assembly.

The surging power demand within the Southeast lies on the doorstep of EQT’s asset base within the Appalachian Basin, Rice stated in the course of the earnings name. Coal plant retirements and information facilities could end in 6 bcf/d of latest natural gas demand in EQT’s yard by 2030, the CEO stated.

EQT just lately bought the proprietor of the Mountain Valley Pipeline, which connects prolific natural gas reserves that EQT is working and creating within the Appalachian Basin to southern Virginia. EQT is the one producer that may entry the rising information heart market by means of the pipeline, stated Jeremy Knop, the corporate’s chief monetary officer.

“I think we are very uniquely positioned in that sense,” Knop stated in the course of the name. Rice stated the Southeast will develop into an much more enticing gas market than the Gulf Coast later within the decade. EQT is planning to broaden capability on the Mountain Valley Pipeline from 2 bcf/d to 2.5 bcf/d. The pipeline is predicted to develop into operational in June.

The stage of electricity demand could assist raise natural gas costs out of the doldrums.

Prices plunged as rather more than 30% within the first quarter of 2024 on robust manufacturing, decrease demand because of a gentle winter and historic stock ranges within the U.S. By 2030, costs could common $3.50 per thousand cubic toes, a 46% enhance over the 2024 common value of $2.39, in keeping with Wells Fargo.

Dominion laid out eventualities in its 2023 useful resource plan that may add wherever from 0.9 to 9.3 gigawatts of new natural gas capacity over the subsequent 25 years. The power firm stated gas generators can be important to fill gaps when manufacturing drops from renewable resources such as solar. The generators could be twin use and capable of take clear hydrogen in some unspecified time in the future.

“We’re building a lot of renewables, which all of our customers are looking for, but we need to make sure that we can operate the system reliably,” Blue instructed analysts throughout Dominion’s earnings name Thursday.

Renewables will play a main function in assembly the demand however they face challenges that make gas look enticing by means of no less than 2030, Read, the Wells Fargo analyst, instructed CNBC.

Many of the renewables will be installed in areas that are not immediately adjacent to data centers, he said. It will take time to build power lines to transport resources to areas of high demand, the analyst said.

Another constraint on renewables right now is the currently available battery technology is not efficient enough to power data centers 24 hours a day, said Zack Van Everen, director of research at investment Tudor, Pickering, Holt & Co.

Nuclear is a potential alternative to gas and has the advantage of providing carbon free energy, but new advanced technology that shortens typically long project timelines is likely a decade away from having a meaningful impact, according to Wells Fargo.

Robert Kinder, chief executive of pipeline operator Kinder Morgan, said significant amounts new nuclear capacity will not come online for the foreseeable future, and building power lines to connect distant renewables to the grid will take years. This means natural gas has to play an important role for years to come, Kinder said during the company’s earnings call in April.

“I feel acceptance of this speculation will develop into even clearer as power demand will increase over the approaching months and years and it will likely be another vital driver of development within the demand for natural gas that may profit all of us within the midstream sector,” Kinder said.

Duke Energy CEO Lynn Good said natural gas “will be a troublesome subject,” but the fossil fuel is responsible for 45% of the power company’s emissions reductions since 2005 as dirtier coal plants have been replaced. Good said electricity demand in North Carolina is growing at a pace not seen since the 1980s or 1990s.

“As we have a look at the subsequent a few years looking for a approach to broaden a system to strategy this development, I feel natural gas has a function to play,” Good said at the Columbia Global Energy Summit in New York City in April. The CEO said natural gas is needed as a “bridge gas” until more advanced technology comes online.

“An the entire above technique is the one factor that we see as the best way to keep up the reliability and the affordability that our prospects depend on,” Good said.