U.S. utilities are forecasting rapidly increasing power demand from new data centres being constructed to drive AI applications, and operators along the natural gas value-chain believe much of this power demand will be met by gas-fired generation, setting off a boom equal to or larger than the recent LNG export frenzy.

“Our base case view suggests the proliferation of data centres, along with growth in other electricity-intensive markets such as electric vehicles, will drive an incremental 10 bcf/d of natural gas demand by 2030, while there is a plausible upside case that could take this number up to 18 bcf/d,” EQT chief executive officer Toby Rice told analysts at the company’s first quarter 2024 conference call.

“This means growth in the power generation segment could exceed LNG exports as a bullish demand catalyst for the natural gas market this decade.”

Pipeline and midstream giant Kinder Morgan also sees massive growth in power demand ahead, company chairman Rich Kinder said at its first quarter earnings call. 

“This growth is being driven by a number of factors, most prominently by the increasing demand of new and expanding data centres, especially those required to support AI,” Kinder said. “One recent survey showed a projected increase in electric demand to power data centres of 13 to 15 per cent compounded annually through 2030.”

Data centres used about 2.5 per cent of U.S. electricity in 2022 and are projected to use about 20 per cent by 2030, Kinder said. AI demand alone is projected at about 15 per cent of demand in 2030.

“If just 40 per cent of that AI demand is served by natural gas that would result in incremental demand of 7 to 10 bcf/d,” he said.

It’s important to understand the nature of this new demand to see the role natural gas will play, Kinder added.

“AI and the massive data centres being built today and planned for the near future require affordable electricity that is available without interruption 24 hours a day, 365 days a year,” he explained. “This type of need demonstrates that the emphasis on renewables as the only source of power is fatally flawed in terms of meeting the real demands of the market.”

“This is not a knock on renewables,” he added. “We all know they will play a significant role in the future of electric generation.”

But the big tech companies are looking for immediate power supplies for data centres as they race to compete in the AI market, he said. Natural gas is the only energy source currently positioned to meet this demand.

“Adding significant amounts of new nuclear power to the mix is not going to happen in the foreseeable future,” he said. “The market is now understanding that building transmission lines to connect distant renewables to the grid typically takes years to complete and that's a timeframe inconsistent with the need to place these data centres into service as quickly as possible.”

Much of this power demand growth is expected in the southeast region of the U.S. Utilities in Alabama, Georgia, North Carolina, South Carolina, Tennessee, and Virginia planned to retire around 25,000 MW of coal by 2038. Now, they are also facing demand growth from industrial expansion like data centres.

Georgia Power, a business unit of Southern Company, has plans before the state regulator to build 1,400 MW of new gas fired generation over the next three years.

Duke Energy is looking to build 9,000 MW of gas generation in North and South Carolina. The new generation is needed to meet a 12 per cent increase in electricity demand by 2038. Dominion Energy is also looking to build a 2,000 MW facility in South Carolina.

In total, an estimated 33,000 MW of new gas fired power could be built in the southeast by 2030.

ERCOT, the Texas grid operator, expects demand to increase by 62 GW by 2030, reaching an estimated 152 GW.

“Utilities throughout America are sounding alarm,” said Kinder.

“PJM Interconnection, which operates the wholesale power market across part of the Midwest and the Northeast, has doubled its 15-year annual forecast for demand growth and estimates that demand in the region by 2029 will increase by about 10 gigawatts. To put that in perspective, 10 gigawatts is about twice the power demand in New York City on a typical day.”

Data centre power demand growing globally, says IEA

There are currently more than 8,000 data centres globally, with about one-third located in the United States, 16 per cent in Europe and close to 10 per cent in China, according to the International Energy Agency (IEA) 2024 Electricity Report.

Globally, data centre electricity usage could double by 2026, the IEA said. Data centres consumed 460TWh in 2022, and the IEA’s most ambitious forecast predicts power usage will rise to more than 1,000TWh by 2026.

“This demand is roughly equivalent to the electricity consumption of Japan,” said the IEA.

“We expect global electricity consumption of data centres, cryptocurrencies and artificial intelligence to range between 620-1,050 TWh in 2026, with our base case for demand at just over 800 TWh, up from 460 TWh in 2022,” the IEA said. “This corresponds to an additional 160 TWh up to 590 TWh of electricity demand in 2026 compared to 2022, roughly equivalent to adding at least one Sweden or at most one Germany.”

U.S. data centre power use is forecast to rise from 200TWh in 2022 to 260TWh in 2026, equal to six per cent of all generation.

In the European Union, data centre electricity consumption was estimated at slightly below 100 TWh in 2022, almost four per cent of total EU electricity demand. Around 1,240 data centres were operating, with the majority concentrated in the financial centres of Frankfurt, London, Amsterdam, Paris and Dublin.

“With a significant number of additional data centres planned, as well as new deployments over the coming years, we forecast that electricity consumption in the data centre sector in the European Union will reach almost 150 TWh by 2026,” said the IEA.

In Ireland data centres already consumed around 17 per cent of power in 2022. The EIA said with new data centres under construction that number could rise to 32 per cent of all power generated by 2026.

China’s State Grid Energy Research Institute expects electricity demand in the country’s data centre sector to double to 400 TWh by 2030, compared to 2020.

“We forecast electricity consumption from data centres in China to reach around 300 TWh by 2026,” said the IEA. “A major source of data centre growth is expected to come from the rapid expansion of 5G networks and the Internet of Things (IoT).”