U.S. natural gas producers and shippers could be one of the big winners of the latest advances in Artificial Intelligence.
The surge in data centers amid the booming AI technology development is set to lead to higher U.S. natural demand and prices by the end of the decade, according to investment bank Tudor, Pickering, Holt & Co.
Natural Gas To Meet Some of Power Demand Spike
Electricity demand to power the data centers is soaring and so is demand for grid connections. While many tech companies prefer to power their AI development centers with solar and wind, the need to get these data centers built and powered fast would boost demand for natural gas, too.
This could raise further doubts about the current U.S. Administration's plans to have the U.S. grid increasingly greener and generate 100% carbon pollution-free electricity by 2035. Considering that natural gas is currently the single-biggest source of power generation in America, this target of the Biden Administration has been questioned and viewed as unattainable even before the surge in power demand, which has reversed years of falling or flat electricity consumption.
As electricity demand from data centers is set to jump to as much as 42 gigawatts (GW) by 2030, from 11 GW now, the U.S. would need an additional 8.5 billion cubic feet per day of natural gas (Bcf/d) to meet the rise in consumption, according to a report from Tudor, Pickering, Holt & Co cited by Reuters. Related: Gas Prices Likely to Keep Falling Ahead of Peak Driving Season
Therefore, natural gas demand for power generation is set to jump in the second half of this decade, and U.S. benchmark natural gas prices could average as much as $4 per million British thermal units (MMBtu), the report notes.
That's more than double the current Henry Hub natural gas price, which has lingered below $2 per MMBtu for most of this year amid milder winter weather and lower demand for heating and power.
Gas Producers and Shippers to Benefit from Soaring Power Demand
Natural gas producers are currently curtailing some output amid the market glut but are prepared to boost production later in the year and expect rising domestic power demand and LNG exports to raise consumption and prices.
Top natural gas producers EQT Corporation and Chesapeake Energy, as well as pipeline giants such as Energy Transfer, Williams Companies, and Kinder Morgan, are expected to benefit from the soaring power demand and rising natural gas prices as a result, Tudor, Pickering, Holt & Co said.
Last week, Kinder Morgan issued an upbeat outlook on its natural gas transportation business in the medium to long term despite the current low prices.
"Notwithstanding the current low natural gas price environment, the future looks very bright for our Natural Gas Pipelines business segment," the pipeline giant said in its Q1 earnings release.
Kinder Morgan sees substantial growth in U.S. natural gas demand by 2030, led by more than a doubling of demand for LNG exports and a more than 50% increase in exports to Mexico.
"We are also anticipating significant new natural gas demand for electric generation associated with artificial intelligence operations, crypto currency mining and data centers, which would be additive to the growth discussed above," CEO Kim Dang said.
U.S. natural gas producers also believe they have a role to play in providing gas for the soaring power demand from data centers and AI technologies.
Natural gas, which currently meets 43.1% of U.S. utility-scale electricity generation, will continue to meet a large part of American power demand as new renewables capacity installations will need backup power generation, according to gas industry executives.
"We've got a really amazing emerging market with LNG," Toby Rice, chief executive at the top U.S. natural gas producer, EQT, told the Financial Times earlier this year.
"But there's a new emerging market that people are getting equally as excited about - and it's power demand."
So great is electricity consumption from data centers that U.S. utilities and regulators have raised significantly their forecasts for peak power demand in the coming decade.
After more than a decade of flatlining power consumption in America, the AI boom and the chip and other tech manufacturing are leading to higher U.S. electricity demand.
Currently, nearly 2,600 gigawatts (GW) of generation and storage capacity are actively seeking grid interconnection, according to research from Lawrence Berkeley National Laboratory published earlier this month. The queues indicate particularly strong interest in solar, battery storage, Berkeley Lab said, but noted that the growing grid connection backlog has become a major bottleneck for project development.
"It is promising to see the unprecedented interest and investment in new energy and storage development across the U.S., but the latest queue data also affirm that grid interconnection remains a persistent bottleneck," said Joseph Rand, an Energy Policy Researcher at Berkeley Lab, and lead author of the study.
Many tech companies want clean energy to power their new data centers, but utilities are struggling to keep up with this demand. As a result, some utilities in the eastern and southern parts of the U.S. are proposing build-outs of new natural gas-fired capacity alongside renewables to support the growth in electricity consumption coming from data centers.
By Tsvetana Paraskova for Oilprice.com
Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. More