Power-Hungry Data Centers Demand New Gas Pipelines
The business news lately is full of eye-popping forecasts for how the Artificial Intelligence (AI) revolution is driving demand for new data centers, the electricity to run them, and the need for vastly more power generation to supply them. EEIA's takeaway from synthesizing the latest commentary: new natural gas power generation, fed by new natural gas pipelines, will be the essential and leading source of power to meet the largest share of this new demand.
To illustrate the scale and timing of data center power demand growth, we borrow the chart below from McKinsey's Global Energy Perspective 2023, showing data center demand more than tripling from 178 terawatt hours (TWh, equal to 1,000 gigawatt hours) in 2024, to 606 TWh in 2030, while at the same time rising from 4.3% of total US power demand in 2024 to 11.7% in 2030. In context, that's 428 TWh of incremental growth from 2024 to 2030, which is over 3 times more electricity than is consumed annually in the State of New York. So that's three more New York's worth of NEW power generation needed to operate projected new data centers over the next six years. Generating that much new electricity in a year will require about 50 gigawatts (GW) of new capacity running 24/7. With the average generating capacity of a nuclear power plant between 1 and 1.5 GW - that's equal to the output of up to 50 new full-scale nuclear plants (only one of which has been brought into operation in the US over the past 10 years - Georgia's Vogtle Unit 3 with 1.1 GW).
So where does that leave us? Projected data center power consumption certainly cannot be met by the increasingly limited amount of existing excess generating capacity now available on the grid. Output from planned re-commissioning of some retired nuclear capacity is already mostly spoken for (e.g., Microsoft's 865 MW power purchase agreement from a restart of Three Mile Island, and Amazon's nearly one GW data center connected to the Susquehanna nuclear plant), and in any event a small fraction of the need.
Wind and solar are too weather-dependent to reliably satisfy much of the uninterrupted 24/7 needs of large data centers. The potential for dedicated small modular nuclear reactors is promising but uncertain, and in any event well beyond the 2030 horizon. That leaves new natural gas generation, along with the natural gas supply pipes (which can be much more quickly built and connected), as the only viable candidate for the majority of this new demand. We predict that many will be purpose-built for and dedicated to new data centers. If the US is to maintain its global primacy in AI, policymakers and regulators need to start coming to terms with this picture now.
If all this sounds encouraging, consider the latest initiative by AI guru Sam Altman, head of OpenAI, the developer of ChatGPT. According to an October 1 piece by David Meyer in Fortune Magazine (available on Yahoo Finance), Altman reportedly wants to build several new data centers at 5GW each - with each one requiring the amount of power needed by a large city; or that is produced by five large nuclear reactors. Each center would cost $100 billion and incorporate 2 million AI chips. So far he is silent on how and where the 5GW per center will be generated.
Lastly, we commend you to a recent Yahoo Finance interview with Toby Rice, CEO of EQT, on the need for natural gas and infrastructure to supply the market growth. He sees AI power demand growing by 75 GW, with over 60% supplied by natural gas fired generation. That, he estimates, will require between 6 and 13 billion cubic feet per day (bcf/d) of additional natural gas, on top of about 15 bcf/d more to feed LNG exports coming online over the next few years, and another 15 bcf/d to replace the capacity of remaining coal plant retirements. That will require major additions to pipeline capacity. He laments that we built fewer miles of pipelines in the last year than in any of the previous 30 years, and even that (the Mountain Valley Pipeline) required an act of Congress to complete. For context, his projections add up to about 40 bcf/d on top of today's approximately 100 bcf/d total current production rate.
So the future for new pipeline investments looks bright indeed, if we can overcome obstacles. EEIA will keep a close eye on these important trends and report to members regularly. We strongly encourage you to keep your own close watch on this rapidly developing market for emerging opportunities, and please let us know if you see related trends or developments we haven't yet considered or covered.
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