AI is Here—for Better or Worse—and Changing the Energy Landscape

The techies say the deployment of AI is revolutionary.

Work becomes easier. Health care becomes more effective. Transportation gets faster. Everything changes, and everything is supposed to start changing now.

Especially for the people who produce and move natural gas.

The tech megacompanies—Meta, Amazon, Microsoft and Alphabet, the parent company of Google—plan to invest up to $320 billion on AI in 2025, CNBC reported in February. Last year, the amount was closer to $100 billion.

“I think that both our business, our customers and shareholders will be happy, medium to long-term, that we’re pursuing the capital opportunity and the business opportunity in AI,” Amazon CEO Andy Jassy said during the company’s earnings conference call in February.

Amazon plans to invest around $100 billion in AI over the year, for what Jassy called a “once-in-a-lifetime type of business opportunity.”

There are doubters. The promised life-changing advancements haven’t arrived or even been defined, and just how much money is there in making dress-up pictures of a cat?

But as the year started, tech companies ramped up an already furious competition for chips, warehouses and—most importantly for the energy industry—access to natural gas.

With an overabundant supply and prices near $2/MMBtu, the natural gas business struggled through the first three quarters of 2024. As the year went on, however, midstream company executives began to discuss the birthing of a new market in power supply.

The computer chips in AI servers use 10 times the energy of earlier chips. They are more densely packed in their server housing, and they require a greater amount of cooling. With a greater power requirement, and with many coal-powered generating plants undergoing retirements, the obvious solution so far has been adding power generation through natural gas.

Supply agreement negotiations were under wraps throughout 2024, but now those deals among midstream, natural gas producers and tech companies are becoming public.

In February, Energy Transfer announced a deal to supply 450 MMcf/d to a data center campus in Central Texas, one of the first public deals of its kind. Kinder Morgan and Southern Energy announced a partnership to supply several developing data centers in the Southeast.

Chevron presented a partnership to build natural gas-based power plants to provide on-site electrical generation to data center campuses.

Meta CEO Mark Zuckerburg, whose company has set aside $60 billion in capex for AI development, told investors that 2025 will be a “defining year for AI.”

The natural gas industry has already been redefined, said Chuck Yates, host of the “Chuck Yates Needs a Job” podcast, which focuses on the energy industry.

“I tell everybody out there, you’re not in the natural gas business,” Yates told the audience during a session at NAPE 2025.

“You don’t sell natural gas. You sell electrons,” he said. “Go figure it out because if you look at our grid today, it’s just tapped out.”

The growth and the other options

The International Energy Agency (IEA) predicted in 2024 that the global energy required to power AI by 2026 will equal the amount required to power Japan. OpenAI’s GPT-3, a large language model, takes nearly 1,300 megawatt-hours of electricity to train—the yearly consumption of about 130 U.S. homes.

Data centers in five U.S. states already consume 10% or more of those states’ power, IEA says.

Predictions have varied for power requirements over the next few years thanks to the continually changing plans and forecasts of the companies building the data centers.

Last year, Morgan Stanley estimated global data center power use would more than double from 2024 to 2025, and more than triple in 2026, to about 160 terrawatt hours (TWh). Wells Fargo projected AI power demand to increase 550%, from 8 TWh in 2024 to 52 TWh in 2026, before rising another 1,150% to 652 TWh by 2030. Worldwide, it would represent an 8,050% growth from 2024 levels.

In the U.S., the IEA projections for AI range from 606 TWh to 652 TWh by 2030, representing 11.7% to 16% of the country’s electricity demand.

A Goldman Sachs report forecasts natural gas will supply 60% of the power demand growth from AI and data centers, with the remaining 40% generated by wind and solar.

While tech companies generally take a favorable approach toward renewable energy sources, gas is much more likely to win out.

The U.S. will need to make massive additions to its power grid over the next decade to meet future demand projections, not just for AI, but for a country that is turning toward electrification in general and is experiencing a rise in “reshoring,” in which many companies are moving industrial production from overseas to the U.S.

Unlike wind and solar, the U.S. already has a massive delivery system for natural gas, and a large supply that can be ramped up far faster than arrays and windmill fields. More importantly, gas can be relied upon for steady baseload power, a necessity for data centers that will always be on.

For tech companies and most utilities, additional coal is a non-starter. Companies aren’t willing to develop further sources because it would conflict with efforts to curb greenhouse gas emissions. The current demands on the electrical grid are likely to take up whatever coal-generated power is available.

Utilities retired 22.3 gigawatts (GW) of U.S. coal-fired electric generating capacity in 2022 and 2023, but that trend slowed in 2024. Power companies retired only 1.3% of the U.S. coal fleet that was in operation at the beginning of the year, according to the U.S. Energy Information Administration.

Coal retirements are scheduled to increase again in 2025, with operators expected to retire 10.9 GW. However, overall electrical demand may overwhelm producers’ desire to cut emissions.

An analyst told S&P Commodity Insights report at the end of 2024 that there was a “strong chance” that many existing coal plants will run longer than anticipated, thanks to the “explosive growth” in energy demand in the U.S.

Nuclear, seen as cleaner and as a dependable alternative to natural gas, faces regulatory and cost problems and won’t be a lead player on the energy provider front for years.

Vogtle units 3 and 4 in Georgia, the country’s last addition to the nuclear fleet, spent 15 years under construction and cost $30 billion, double the original projections for time and cost.

Small modular reactors (SMRs) have been pitched as an alternative, but the models remain, for the most part, in the design stage and face the same regulatory obstacle course as the Vogtle reactors, at least for now.

During his confirmation hearing, Energy Secretary Chris Wright, a longtime proponent of nuclear power, said SMRs are about 10 years away from clearing the necessary development and regulatory hurdles to be placed on the market. Wright was optimistic the task could be achieved in six years.

Tech companies aren’t willing to wait that long. Microsoft paid to restart a unit of the Three Mile Island power plant in Pennsylvania. The electricity provided is expected to cost 10 times the cost of gas-fired power. The problem for other companies is that there just aren’t many nuclear sites around the U.S. that are available for recommissioning.

Follow the growth

To appreciate how natural gas feeds the AI revolution, note where the data center campuses are popping up.

One of the most active sites for data center development in the U.S. has sprouted up in the techno center of … Abilene, Texas.

The Trump administration premiered the $500 billion Stargate Project shortly after his inauguration, with the first campus selected for the isolated West Texas town of 130,000 between the Permian Basin and Fort Worth.

“Stargate’s Abilene data center project is expected to scale from 1.2 GW to 5 GW, making it one of the largest power-intensive AI clusters in the world,” said Ethan Warrick, who tracks data center development for East Daley Analytics.

Stargate is the second AI project to come to Abilene. In 2022, Houston-based Lancium broke ground on what was originally planned as a Bitcoin mining operation, powered by renewables in the area. (Abilene has a large number of wind turbines located nearby.)

By 2023, the company had announced a partnership with Crusoe Energy and moved from exclusively Bitcoin mining to building a data-processing campus. While both companies emphasized the area’s available renewable energy, it was difficult for people with knowledge of midstream networks not to notice the number of large-diameter pipelines that passed through the area, carrying natural gas from the Permian Basin to network connections near the Dallas/Fort Worth metro area.

One of the next major pipelines taking gas away from the Permian, Energy Transfer’s Hugh Brinson line, will follow a route that passes close to Abilene. ET announced the project in December.

“We speculate that the new 1.5 Bcf/d project will help feed this emerging demand center,” wrote Warrick in an East Daley report.

Depending on their function, AI data centers are likely to grow in areas with plenty of broadband access, available land and, crucially, near a steady supply of natural gas. Data centers have been built largely near metro areas in Virginia, Texas and Silicon Valley, California. More often now, new facilities are popping up in out-of-the-way places, thanks to the different needs of AI programming.

“When AI models are being trained, typical performance factors such as low latency and network redundancy are less important,” said a McKinsey analysis published in October. “Hence, data centers dedicated to training AI models are being built in more remote locations in the United States, such as Indiana, Iowa and Wyoming, where power is still abundant and grids are less strained.”

In February, Meta announced it was in talks to build a $200 billion AI project with data centers in rural Texas, Louisiana and Wyoming.

The need for speed

Midstream, natural gas and utility companies have been working, sometimes in partnership and sometimes competitively, to secure their positions in the oncoming data center market.

Kinder Morgan has partnered with Southern Co. to boost the Southeastern U.S. natural gas market as more deals are announced.

In 2024, the partners approved the South System Expansion 4 Project to increase the capacity of Southern Natural Gas’ South Line by 1.2 Bcf/d. The $3 billion project is also scheduled to enter service in late 2028, increasing natural gas supplies across the Southeast. The project will provide service to a generally growing area, though company executives say a large portion of demand is coming from AI.

Tech companies have two options—going through the usual red tape offered by utility companies and figuring out how to manage the interconnection process or going straight to the people who already have the supply. Many executives believe the data center builders will come to them.

In February, Energy Transfer announced what may become more of the standard deal for tech and gas companies: a behind-the-meter, 450 MMBtu/d supply of natural gas for the CloudBurst campus, to be built near San Marcos, Texas, between Austin and San Antonio. The supply will be able to generate around 1.2 GW of power for a campus expected to open in 2026.

Behind-the-meter agreements may become the norm. Tech companies generally need to move quickly to remain competitive with other companies around the globe as AI continues to develop at breakneck speed.

“The data centers are not going to wait,” said Alan Armstrong, CEO of Williams Cos., in an interview with Argus Media. “They are going to go to states that allow you to go behind the meter.”

Pittsburgh-based EQT, a natural gas producer that recently purchased its own midstream company, is taking it a step further. During the company’s fourth-quarter earnings call, executives talked about its position as a supplier and a deliverer for data centers.

“Speed to market is a critical component,” said EQT CEO Toby Rice. “That is how EQT will differentiate ourselves. Simple one-stop shop, best, cleanest, most reliable, most affordable gas on the market.”

Some other companies are taking advantage of opportunities in different segments of the market.

Chevron announced in January that it will build on-site gas-fired power plants for data centers. The project will use GE Vernova’s natural gas turbines to deliver up to 4 GW—enough to power roughly 3 million homes—to data centers located in the U.S. Southeast, Midwest, and West regions.

The bear case

While companies generally look for opportunities, some analysts have seen reasons to pull back on expectations for a rapidly developing market with parameters that seem to change every other day.

In January, Chinese company DeepSeek premiered its AI application. The product, according to claims, uses far less processing power than U.S. versions and therefore won’t need near the amount of electricity. It took two weeks for natural gas prices to recover from the hit brought about by the announcement.

Analytical firm RBN explained how an expected boom in natural gas demand could fizzle.

“Don’t buy into the hype too quickly,” said the analysis, published in mid-January. “While numerous data centers are indeed in development, natural gas will face stiff competition from wind and solar—green energy sources that data center operators strongly favor over fossil fuels.”

While midstream companies hope to develop carbon capture and storage systems, that sector is still underdeveloped and projects have difficulty obtaining permits from multiple state and federal agencies. Another factor is the dealmaking. Midstream companies often need a 10- to 20-year commitment to pay for the infrastructure needed. Many tech firms are likely to hesitate before making a deal of that duration.

“No utility wants to risk building costly infrastructure only to see demand fade as the industry discovers ways to reduce AI’s power consumption,” RBN said.

Finally, natural gas power projects generally take years to build, even when everyone isn’t fighting over the same equipment needed to build generators. Tech companies may have overly optimistic timelines that don’t match up with reality.

However, the overall case for natural gas development remains bullish, according to analysts. The market is getting a boost from LNG exports that are likely to take up a larger share of the market, executives at Expand Energy, the country’s largest natural gas producer, said at NAPE.

“Just to be clear, in our view, at least 75% of the natural gas demand growth is going to come from LNG,” Expand Energy CFO Mohit Singh said.

Others remain confident that the market will develop, regardless of the pace.

Stuart Saulters, vice president of government affairs at GPA Midstream, said he had talked to a representative of a utility company following the DeepSeek announcement. If the tech world can get the same thing done with less material, the tech world was likely to do more overall.

“He told me, even if they don’t need as much power for the chips, that just means they’ll do more than they’re planning to now,” Saulters said.