Will AI increase the demand for Natural Gas in the US?

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

In this blog post I will present a summary of the recent research in this area and some supporting references from natural gas companies.

After a decade of flat power growth in the US, electricity demand is forecast to grow as much as 20% by 2030 according to a recently published report by Wells Fargo.  That report estimated AI data centers are expected to add 323 terawatt hours of electricity demand by 2030, which by comparison, is 7 times the electricity consumption of New York City.  Similar analysis by Goldman Sach’s estimates data centers will represent 8% of total US electricity demand by 2030.

The big tech companies have committed to powering their data centers with renewables to slash carbon emissions, but a report by Rystad Energy indicates surging electricity loads require an energy source that can meet spiking demand when renewables are not generating enough power.  Power hungry data centers consume electricity 24/7, not falling in line with fluctuating generation from renewable energy sources.  It is this baseload requirement for electricity which favors natural gas, which can generate power while renewables are not generating.

The Goldman Sachs Equity Research report published in April suggests that natural gas is expected to supply 60% of the power demand growth from AI and data centers with 40% coming from renewable sources.  That equates to a 10% increase in the amount of natural gas consumed by the power market by 2030 as compared to today.  This Goldman Sachs report also suggests the potential need for the construction of up to 6.1 bcf/day of pipeline capacity by 2030.

While the estimates of the increase in demand vary, all suggest significant growth in electricity demand in the coming years, and a rapidly increasing portion of that demand growth is being attributed to data centers and AI.  Boston Consulting Group has estimated data center electricity consumption in the US accounted for 2.5% of total consumption in 2022, and projects that will triple to 7.5% by 2030.  For reference that is equivalent to the electricity consumed by 40 million US households (approximately one third of the homes in the US).

A December 2023 report by Grid Strategies LLC explains a doubling of the 5-year electricity load growth forecast from 2.6% to 4.7%.  That growth is coming from $481 billion in investments of industrial and manufacturing facilities and $150 billion in investments of data centers through 2028.  That report further highlights that data center growth is being supercharged by the rise of artificial intelligence.  Seven of the regional load forecasts indicated data center growth (including crypto and AI) along with industry facilities were the key drivers of the surge in load growth expectations.

Data from the Goldman Sachs and BCG analysis suggest the most significant growth in data centers will occur in these four electric power markets (top states indicated):   PJM (Virginia & Ohio), MISO (Illinois), CAISO (California) and the Southeast (Florida & Georgia).

Barron’s reported in May that the AI boom is powering Gas Pipeline stocks.  Barron’s indicated a rise in stock prices for major natural gas pipeline companies including Kinder Morgan, Williams, Enbridge and ONEOK.  They also indicated that these pipeline companies are starting to acknowledge the rise of electricity demand from data centers that process AI applications for the first time.

With some quick research, it was easy to find numerous recent relevant references.

EQT’s CEO Toby Rice explained on CNBC’s Money Movers that “Power companies need energy that is reliable, affordable and can be deployed quickly to meet the rising electricity demand.  Rice also told analysts on the company’s recent earnings call that EQT is positioned to become a key facilitator of the data center build out in the Southeast.”

Dominion Energy has forecasted that demand from data centers in Northen Virginia will more than double from 2023 through 2030.  Dominion’s CEO Robert Blue stated during their March investor meeting that “Economic growth, electrification and accelerating data center expansion are driving the most significant demand growth in their company’s history”.

Richard Kinder, executive chairman of pipeline operator Kinder Morgan stated on their April earning’s call: “significant amounts of 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 Morgan CEO Kim Dang added that he expects “significant new natural gas demand rising from energy intensive tech such as AI, crypto mining and data centers”.

Stanley Chapman, executive vice president and COO of Calgary, Alberta-based TC Energy, in a May 3 company earnings call said he “expects demand for natural gas tied to data center operations will rise by as much as 8 billion cubic feet a day (Bcf/d) by 2030. That level is equal to about 21% of the current demand for the fuel at U.S. gas-fired power plants.”

Williams Pipeline President and CEO Alan Armstrong told analysts that “Electricity demand is experiencing three times faster growth per year this decade than we have seen in previous decades, driven by the increase in electric vehicles and emergence of new, large-load data centers”.

In summary, natural gas producers are bullish on demand as they see a significant increase in the energy needs of data centers primarily because of the surge in adoption of AI technologies and most notably generative AI, which requires significantly more power than traditional data centers.

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