Artificial intelligence could drive a US natural gas boom

According to projections by US banks and gas companies, rising electricity consumption at data centers will be one of the main drivers of increased natural gas demand through 2030. As data centers expand, consumption could rise by as much as hundreds of millions of cubic meters per day. Analysts caution, however, that these forecasts may be constrained by factors such as insufficient pipeline infrastructure. 

The United States expects electricity consumption to surge in the coming years. In addition to the expansion of domestic semiconductor and battery manufacturing and the electrification of transport, this growth is expected to be driven by the unprecedented development of artificial intelligence (AI), which is closely linked to the construction of data centers.

“Economic growth, electrification and the accelerating expansion of data centers are driving the most significant growth in demand in our company’s history, and there are no signs of it slowing down,”said Dominion Energy CEO Robert Blue at the company’s investor meeting in March. The company operates in Virginia and South Carolina, for example—markets where total data center capacity is expected to double by 2030.

According to an analysis published by Wells Fargo in April, US electricity demand is expected to increase by as much as 20% by 2030. Data centers alone are expected to add as much as 323 terawatt-hours to the country’s electricity consumption by 2030, the analysis says.

Another US bank, Goldman Sachs, also expects an upward trend. It projects that 28 GW, or 60 percent of the generation capacity needed to power new data centers by 2030, will come from natural gas—9 GW from combined-cycle plants and 19 GW from gas-fired power plants.

Gas companies are increasingly embracing this narrative, too. According to EQT, the largest US gas producer, growing demand from data centers is a “cornerstone” of the current increase in natural gas demand.

“That’s why people are becoming increasingly optimistic about gas,”said Roger Read, an equity analyst and one of the authors of the Wells Fargo analysis, in an interview.

The significant increase in electricity demand for data centers also poses a challenge, particularly for technology companies such as Amazon, Google, Microsoft and Meta. They have pledged to power their data centers with renewable energy sources to reduce carbon emissions. Current projections nevertheless suggest that wind and solar power will not be enough to meet such a substantial increase in demand.

Gas companies highlight gas’s role in technological development

Wells Fargo forecasts that gas demand for electricity generation will rise by 283 million cubic meters per day by 2030, mostly to power data centers. More aggressive data center construction scenarios project an increase in demand of as much as 509 million cubic meters. Total US gas production is currently around 2.8 billion cubic meters per day.

Kinder Morgan, another company and one of the country’s largest pipeline operators, now expects data centers to consume a total of 20% of all energy in 2030, compared with 2.5% in 2022. According to analyses available to the company, meeting just 40% of this electricity demand with gas-fired generation would increase gas demand by 198-283 million cubic meters per day.

“This type of consumption shows that a focus on renewable energy as the sole source of energy has fatal shortcomings when it comes to meeting the market’s actual requirements,” said Richard Kinder, executive chairman of Kinder Morgan. “The primary use of these data centers is big tech, and I believe they are beginning to recognize the role that natural gas and nuclear power must play.”

The question is whether new infrastructure can be built

Demand forecasts may nevertheless vary considerably at this point, as analysts are still assessing how much electricity data centers will actually demand. According to an article by Julian Hast, a reporter covering the US gas sector, on Argus Media, further growth in gas use may also be held back by other challenges, particularly those associated with building new infrastructure.

The construction of new infrastructure often faces lawsuits and opposition from state regulatory agencies. In recent years, these cases have led developers to cancel several interstate gas pipeline projects in the eastern US.

Complications with plans for new infrastructure, combined with only 6 years left in the decade, are dampening the gas industry’s hopes of capitalizing on the data center boom. A large share of future data centers are expected to be built in the southeastern US, far from the country’s main natural gas deposits, and analysts say the new demand cannot be met without new pipelines.