AI could fuel a natural gas boom as utilities face surging electricity demand

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. response.

According to Wells Fargo analysis released in April, after a decade of steady energy growth in the US, electricity demand is forecast to increase as much as 20% by 2030. Utilities are moving quickly energy security as the rise of AI coincides with the expansion of domestic semiconductor and battery manufacturing and the electrification of the nation’s vehicle fleet.

According to Wells Fargo, AI data centers alone are expected to add about 323 terawatt hours of electricity demand in the US by 2030. Forecasted electricity demand from AI alone is seven times larger than consumption. New York City’s current annual electricity supply is 48 terawatt hours. Goldman Sachs predicts that data centers will account for 8% of total U.S. electricity consumption by the end of the decade.

The Electricity demand skyrocketed poses a challenge for Amazon, Google, Microsoft And Meta. Tech companies are committed Power their data centers with renewable energy to cut carbon emissions. But solar and wind alone may not be enough to meet electricity demand because they depend on changing weather, according to an April note from consulting firm Rystad Energy.

According to Rystad, increasing electrical load will require an energy source that can meet demand spikes in conditions where renewable energy does not generate enough electricity. The natural gas industry is betting that gas will be the preferred choice.

Richard Kinder, executive chairman of the pipeline operator, said: “This type of demand demonstrates that the emphasis on renewables as the sole source of energy is a serious mistake in meeting demand market reality”. Kinder Morgantold analysts in the company’s first-quarter earnings report in April.

“The primary use of these data centers is big tech, and I believe they are starting to recognize the role of natural gas and nuclear,” Kinder said on the call. Kinder Morgan is the largest natural gas pipeline operator in the US with a 40% market share.

According to a Goldman Sachs report released in April, natural gas is expected to provide 60% of the growth in energy demand from AI and data centers, while renewables will provide 40% of the growth. % remaining.

According to Wells Fargo, gas demand could increase by 10 billion cubic feet per day by 2030. This would represent a 28% increase over the 35 bcf/d currently consumed to produce electricity in the US and an increase of 10 % compared to the country’s total gas consumption of 100 bcf/day.

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

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

Electric companies will need energy that is reliable, affordable and can be deployed quickly to meet growing electricity demand, said Toby Rice, CEO of the Electric Power Company. EQT Group., the largest natural gas producer in the US

“Speed ​​to market matters,” Rice told CNBC’s “Money Movers” in late April. “This will be another point of difference for EQT and natural gas to account for a very large amount of large share of this market.”

EQT is positioned to become a “key enabler of data center construction” 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 a boom, boasting more data centers than the next five largest markets in the US combined. Some 70% of the world’s internet traffic Pass through this area every day.

Electrical company Energy dominates Demand forecast 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 demand coming from data centers, said Christopher Womack, CEO of parent company Georgia Power. Southern Companyduring the utility’s fourth-quarter earnings call in February.

“Economic growth, electrification, accelerating data center expansion are driving significant demand growth,” Dominion CEO Robert Blue said during the company’s March investor call. highest in our company’s history and they show no signs of abating.”

Rice said on the earnings call that growing electricity demand in the Southeast lies directly in front of EQT’s asset base in the Appalachian Basin. The shutdown of coal plants and data centers could lead to new natural gas demand in EQT’s backyard of 6 bcf/d by 2030, the CEO said.

EQT recently acquired the owners of the Mountain Valley Pipeline, which connects the rich natural gas reserves that EQT operates and develops in the Appalachian Basin to southern Virginia. Jeremy Knop, the company’s chief financial officer, said EQT is the only manufacturer that can access the growing data center market through this system.

“I think we’re very uniquely positioned in that sense,” Knop said on the call. Rice said the Southeast will become an even more attractive gas market than the Gulf Coast by the end of the decade. EQT is planning to expand capacity on the Mountain Valley Pipeline from 2 bcf/d to 2.5 bcf/d. The pipeline is expected to be operational in June.

The level of electricity demand could help lift natural gas prices out of the doldrums.

Prices fell more than 30% in the first quarter of 2024 due to strong production, lower demand due to a mild winter and historic inventory levels in the US. By 2030, prices could average $3.50 per 1,000 cubic feet, up 46% from the previous quarter. According to Wells Fargo, the average price in 2024 is $2.39.

Dominion laid out scenarios in its 2023 resource plan that would add between 0.9 and 9.3 gigawatts of power. new natural gas capacity in the next 25 years. The power company said gas turbines will be important to fill the gap as production declines from renewable resources like solar energy. The turbines will have dual uses and be able to take clean hydrogen at some point.

“We’re building a lot of the renewables that all of our customers are looking for, but we need to make sure they I can operate the system reliably.”

Renewables will play an important role in meeting demand but they face challenges making gas attractive through at least 2030, said Read, the Wells Fargo analyst. with CNBC.

Many renewable energy sources will be installed in areas not adjacent to data centers, he said. The analyst said it will take time to build power lines to transport resources to high-demand areas.

Another limitation to renewable energy today is that existing battery technology is not efficient enough to provide energy, said Zack Van Everen, director of research at investment firm Tudor, Pickering, Holt & Co. capacity for data centers 24 hours a day.

According to Wells Fargo, nuclear is a potential alternative to gas and has the advantage of providing carbon-free energy, but new advanced technology helps shorten the often lengthy project times it can take. another decade to have a meaningful impact.

Robert Kinder, chief executive of pipeline operator Kinder Morgan, said a significant amount of new nuclear capacity would not come online in the near future and the construction of power lines to connect the Renewable energy sources far away from the grid will take many years. This means natural gas must play an important role for years to come, Kinder said during the company’s earnings call in April.

“I think the acceptance of this hypothesis will become even clearer as electricity demand increases in the coming months and years and it will be another important driver of natural gas demand growth,” Kinder said. course, benefiting all of us in the midstream sector.” speak.

Energy Duke CEO Lynn Good said natural gas “can be a difficult subject,” but the fossil fuel is responsible for a 45% reduction in the utility’s emissions since 2005 when coal plants dirtier has been replaced. Good said electricity demand in North Carolina is growing at a rate not seen since the 1980s or 1990s.

“As we look to the next few years to try to find ways to scale the system to achieve this growth, I think natural gas has a certain role to play.” The CEO said natural gas is needed as a “bridge fuel” until more advanced technology emerges.

“All of the above strategies are the only things we see as ways to maintain the reliability and affordability that our customers rely on,” Good said.