US natgas manufacturers chase AI-driven surge of power demand to weather low price

Shale gas producers are contacting data-center operators in the U.S. Permian Basin to build up the capacity needed to power an AI boom. They want to relieve the pressure of a two-year-old slump in prices.

Devon Energy, Expand Energy Diamondback Energy and Permian Resources highlighted the potential of AI and data centres to drive gas consumption and said that they were in preliminary discussions with many operators.

According to estimates by S&P Global Ratings, the energy demands of U.S. Data Centers could increase gas consumption between 3 and 6 billion cubic foot per day (bcfd). S&P Global Ratings expects U.S. power consumption for data centers to rise 12% per year until 2030.

James Walter, co-CEO of Permian Resource and a West Texas and New Mexico resident, said that the expectation of a significant change in the power demand created an opportunity to increase dialogue about the potential of power generation and data project within the Permian basin.

Data-center developers may find the region attractive because of its abundance of gas at low prices, large surface area, friendly regulatory environment and old inventory.

The persistently low gas prices are fueling this mindset. The average spot monthly price at the U.S. Henry hub benchmark fell to a low of 32 years in March, and has remained weak.

Diamondback Energy CEO Travis Stice said, "Rather than continue to get low margins for our gas... We're trying creative ways to convert some of that gas into more value to our shareholders."

Analysts say that the limitations of the electricity grid in Texas may lead to tripartite agreements between operators, utilities and data center developers.

"That's the most likely direction that we will take." "I don't believe that many operators are willing (to) put down the capital to build power stations," said Carson Kearl, energy researcher Enverus.

CARBON FOOTPRINT

Kearl said that operators willing to develop carbon capture and storage operations around gas-fired plants in Louisiana and Texas may gain an advantage with publicly traded hyperscalers.

BKV Corp Chief Executive Officer Eric Jacobsen said, "The combination between natural gas and carbon-capture provides a winning formulation that will help to fuel the continued growth of AI, data centers build-outs."

Hyperscalers such as Amazon, Microsoft and Alphabet’s Google division have committed to achieving net-zero emissions. They are therefore keen to reduce the carbon footprint of their data centers.

John Hess of the shale producer Hess Corp said at the Wolfe Research Oil and Gas Conference in November that "Our country should have a Manhattan Project for natural gas as a supply source to meet the power and electricity demand growth we see in AI."

(source: Reuters)