Skyrocketing US data center growth is driving high demand for natural gas, according to a new report from S&P Global.
In its data center energy demand growth model, S&P concluded that if 50 percent of incremental capacity comes from natural gas-fired units (including baseload and peak suppliers), the grid would require up to 50GW of incremental generation supply.
As a result, demand for natural gas to support data centers could reach up to three billion cubic feet per day (bcf/d), though this figure may shift based on the energy mix powering these facilities. Should natural gas assume a larger share, demand from data centers alone could climb as high as six bcf/d by 2030.
This is at odds with the significant reductions in carbon emissions targeted by the sector's most prominent hyperscalers, such as Google, AWS, and Microsoft.
S&P claims that natural gas would likely assume the role of a backup fuel due to renewable energy's intermittency issues. Generators would benefit from generators' ease of access and cost advantages if new infrastructure is needed.
S&P views the risk profile for these projects as low. They can leverage existing pipeline rights of way, reducing the need for complex permits and minimizing community pushback, especially relative to larger builds. Most interconnections are anticipated to be completed within 12 months, outpacing the infrastructure limitations often seen on the generation side.
The report notes that several headwinds could temper data center demand, subsequently impacting the pace of natural gas demand. These include the lack of new interconnections for gas generation in PJM Interconnection, weak economics, and long lead times for transmission infrastructure upgrades.
Virginia and Texas are earmarked as the two regions most likely to benefit from increased natural gas use due to their proximity to natural gas production.
Data centers in Northern Virginia benefit from proximity to Marcellus shale production, while those in the Dallas-Fort Worth region are near Permian Basin gas supplies in West Texas. This geographic advantage could streamline fuel supply for new merchant generators rather than regulated utilities, though capacity development in these areas has yet to take off fully.
The report projects that renewable growth will displace natural gas in PJM through 2035, while natural gas usage should remain steady in Texas.
Rising electricity demand from data centers is expected to bolster the midstream sector, offering a new avenue for growth capital and stable, contracted cash flows. Companies expected to benefit from this include Enbridge, Kinder Morgan, TC Energy, and Williams Cos.
Data center operators are already shifting towards natural gas to power their installations. In August, TC Energy indicated that it was seeking opportunities for growth in North America following rapid data center growth in the continent.
Francois Poirier, CEO at TC Energy, said: “Never have I seen such strong prospects for North American natural gas demand growth. We are seeing natural gas demand reach record highs, and this is expected to grow by nearly 40 billion cubic feet per day by 2035."
