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AI data centers alone are expected to add about 323 terawatt hours of electricity demand

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

Sunday 05/May/2024 - 10:46 PM
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Natural gas producers are planning for a significant spike in demand over the next decade، as artificial intelligence drives a surge in electricity consumption that renewables may struggle to meet alone.

After a decade of flat power growth in the U.S.، electricity demand is forecast to grow as much as 20% by 2030، according to a Wells Fargo analysis published in April. Power companies are moving to quickly secure energy as the rise of AI coincides with the expansion of domestic semiconductor and battery manufacturing as well as the electrification of the nation’s vehicle fleet.

Power demand

AI data centers alone are expected to add about 323 terawatt hours of electricity demand in the U.S. by 2030، according to Wells Fargo. The forecast power demand from AI alone is seven times greater than New York City’s current annual electricity consumption of 48 terawatt hours. Goldman Sachs projects that data centers will represent 8% of total U.S. electricity consumption by the end of the decade.

The surge in power demand poses a challenge for Amazon، Google، Microsoft and Meta. The tech companies have committed to powering their data centers with renewables to slash carbon emissions. But solar and wind alone may be inadequate to meet the electricity load because they are dependent on variable weather، according to an April note from consulting firm Rystad Energy.

Surging electricity loads will require an energy source that can jump into the breach and meet spiking demand during conditions when renewables are not generating enough power، according to Rystad. The natural gas industry is betting gas will serve as the preferred choice.

The emphasis on renewables

“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، executive chairman of pipeline operator Kinder Morgan، told analysts during the company’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 said during the call. Kinder Morgan is the largest natural gas pipeline operator in the U.S. with 40% market share.

Natural gas is expected to supply 60% of the power demand growth from AI and data centers، while renewables will provide the remaining 40%، according to Goldman Sachs’ report published in April.

Gas demand could increase by 10 billion cubic feet per day by 2030، according to Wells Fargo. This would represent a 28% increase over the 35 bcf/d that is currently consumed for electricity generation in the U.S، and a 10% increase over the nation’s total gas consumption of 100 bcf/d.

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

The demand forecasts، however، vary as analysts are just starting to piece together what data centers might mean for natural gas. Goldman expects a 3.3 bcf/d increase in gas demand، while Houston-based investment bank Tudor، Pickering، Holt & Co. sees a base case of 2.7 bcf/d and a high case of 8.5 bcf/d.

Powering the Southeast boom

Power companies will need energy that is reliable، affordable and can be deployed quickly to meet rising electricity demand، said Toby Rice، CEO of EQT Corp.، the largest natural gas producer in the U.S.

“Speed to market matters،” Rice told 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 become a “key facilitator of the data center build-out” in the Southeast، Rice told analysts on the company’s earnings call in April.

The Southeast is the hottest data center market in the world with Northern Virginia in the thick of the boom، hosting more data centers than the next five largest markets in the U.S. combined. Some 70% of the world’s internet traffic passes through the region daily.

The power company Dominion Energy forecasts that demand from data centers 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 sales growing 9% through 2028 with 80% of the demand coming from data centers، said Christopher Womack، CEO of Georgia Power’s parent Southern Company، during the utility’s fourt-quarter earnings call 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 said during the company’s March investor meeting.