East Daley: Data Center Renaissance Juices Gas Outlook

Zach Krause is an energy analyst at East Daley Analytics.

The energy industry is abuzz about data centers and their potential to spur growth. The natural gas sector, in particular, is poised for gains as this emerging sector adds fuel to a strong demand outlook and incentivize new pipeline expansions.

Data centers are a hot topic for good reason. Rapid advancement in artificial intelligence (AI) and machine learning technologies is fueling a development boom across the U.S. and Canada. Developers, including many of the world’s leading technology companies, are clamoring for access to massive quantities of electricity to run these data centers, or are making plans to generate their own power on site.

The pace of development has been startling. East Daley Analytics is tracking over 360 active data center projects across the Lower 48 totaling over 113 gigawatts (GW) of potential electricity demand. Developers have started most of these projects since 2023, while new ones are announced by the week. Those projects advancing to final development will draw on resources including renewables, natural gas, and even nuclear to generate power.

The role that natural gas will play in supporting this trend is still up in the air, but industry forecasts predict anywhere from 3 Bcf/d-15 Bcf/d of additional demand could emerge by 2030. The uncertainty range is wide and complicates resource planning by companies and investors. Nevertheless, the trend is bullish for industry. Energy Transfer, Kinder Morgan, TC Energy and the Williams Cos. are a few of the companies positioned to benefit.

Location is key

Developers require three resources to build data centers: access to affordable and reliable power; water for cooling; and proximity to fiber-optic networks to connect to internet infrastructure. Geography will influence where developers will construct new facilities, and which midstream players will see upside.

Northern Virginia is currently home to the world’s largest network of data centers. The region is an established technology hub and hosts ready demand from federal agencies, plus excellent energy and internet infrastructure. Local legislators in Prince Willam County, Virginia, are supporting the Digital Gateway Project, which aims to bring up to 37 data centers to the county. Virginia leads the nation with over 19 GW of active data center projects under development, mostly in the state’s northern region.

Texas is the second-largest data center market. We are tracking about 17.5 GW of data center projects in Texas, many planned in the Dallas-Fort Worth area. The state has many advantages: a regulatory environment friendly for business, ample land and abundant energy resources. Texas will also see the first investments from the $500 billion Stargate Project announced by the Trump administration to build AI infrastructure. The partnership with tech companies OpenAI, SoftBank and Oracle plans to invest $100 billion to build AI infrastructure across the U.S., starting with a massive 5 GW project near Abilene, Texas.

Georgia, Illinois and Nevada round out the top five states for data center development as of first-quarter 2025. Other hotspots are emerging in Maricopa County, Arizona; Atlanta, Georgia.; Louisiana; and central Ohio, signaling a shift in where data center development will influence future infrastructure investments.

Rapid demand growth

Based on our review of projects, East Daley forecasts about 7.8 Bcf/d of natural gas demand by 2030 from data center power consumption.

We estimate 113.8 GW of potential electricity load to run data centers, and that natural gas demand could increase 8.8 Bcf/d to serve this new load. Of course, not all of these projects will be constructed, and some completion dates will slip past 2030. But we have prioritized projects with committed capital, that have started construction or have made preliminary IT equipment orders. Virginia (mostly Northern Virginia) leads with 1.84 Bcf/d of potential gas demand, followed by Texas (1.74 Bcf/d) and Georgia (718 MMcf/d).

Our base case forecast assumes a 6.8 Btu/kWh heat rate for natural gas-fired power generation and a power usage effectiveness (PUE) of 1.35 for data centers. We estimate that natural gas will serve 40% of new data center power demand, and apply this assumption to projects that have not disclosed onsite generation plans. Some projects plan to use onsite co-generation, in which case we assume 100% of power demand is met with natural gas.

Bullish and bearish factors   

The market is still in the early innings of the data center boom. How might the outlook for development and future gas demand change?

East Daley’s estimate is based only on existing projects in the first quarter, and the swift pace of new announcements suggests that actual gas demand could surpass our outlook. The sector is also trending toward onsite gas-fired generation as a behind-the-grid solution, often using single-cycle “peakers” with heat rates of 10–11 Btu/kWh compared to the 6.8 Btu/kWh heat rate we assume for combined-cycle plants. This shift to less-efficient onsite generation could lead to more gas demand than we assume.

Natural gas also maintains a cost advantage over competing renewable power generation. According to a 2022 study by the Energy Information Administration (EIA), the capacity-weighted average construction cost for natural gas-fired generation was about $820,000/MW, about 50% less than solar ($1.6MM/MW) and 43% less than wind projects ($1.45MM/MW). If natural gas captures a larger share of the power load than our current assumption of 40%, demand could increase significantly.

Momentum is certainly strong, there are also reasons for caution on future demand growth. The primary risk factors include:

• Increased computing efficiency limits demand growth: Advancements in AI model efficiency pose the most immediate risks to electricity demand growth. DeepSeek made headlines in January, when it announced an AI model with capabilities comparable to OpenAI’s at 13 times lower cost, implying significantly lower energy consumption.
• Emergence of small modular nuclear reactors (SMRs): The growth of nuclear power is another risk to natural gas. Google has partnered with Kairos Power, and Oracle has disclosed plans to build data centers powered by SMRs, signaling that major tech firms are actively exploring zero-emission nuclear power as a long-term solution.
• Grid interconnect bottlenecks delay power projects: The slow pace of grid interconnection approvals is a structural constraint on gas demand. As of early 2024, about 79 GW of new natural gas-fired generation was waiting for approval in Independent System Operator (ISO) tie-in queues. Historical data suggest that only about 20% of projects in these queues are actually constructed.

Infrastructure boom

Data centers are already shifting the ground beneath the midstream sector. LNG exports have driven most demand growth over the last decade, but these projects have mostly confined to the Gulf Coast. Now, data centers are creating tailwinds for projects across the Lower 48.

For example, Energy Transfer  in December 2024 took a final investment decision (FID) on the 400-mile Hugh Brinson Pipeline (formerly Warrior Pipeline) out of the Permian Basin to Maypearl, Texas, south of Dallas-Fort Worth. Originally proposed in spring 2022, executives cited demand-side commitments from utilities and data center developers for pulling the $2.7 billion project over the finish line.

In the Southeast, midstream companies are finding fertile ground for new demand. Boardwalk Pipeline Partners is moving forward with the Kosci Junction project, a 36-inch pipeline from the Texas Gas Transmission system east to interconnects in Mississippi with the Southern Natural Gas and Gulf South systems. Kinder Morgan subsidiary Tennessee Gas Pipeline also took FID on the Mississippi Crossing project, which includes a new pipeline between Greenville, Miss. and Choctaw County, Alabama, to Compressor Station 85 of the Transcontinental Gas Pipe Line. Williams is also developing the Southeast Supply Enhancement (SSE) project to bring gas south on Transco. Companies have cited data center developers as a source of project commitments.

Elsewhere, TC Energy and Williams are seeing new demand emerge in the Midwest. TC’s ANR Pipeline has struck an agreement with a local distribution company to supply 144 MMcf/d for Microsoft’s new data center in Mount Pleasant, Wisconsin. Meanwhile, Williams is pursuing Project Socrates in Ohio to meet electricity needs for data centers. The company plans to build 400 megawatts of gas-fired generation in New Albany, Ohio, plus supporting pipelines for an estimated $1.6 billion.

Data centers are one of several themes driving higher gas demand, including LNG demand pull, coal retirements and onshoring of industrial plants. East Daley anticipates a target-rich environment for midstream as demand growth creates more opportunities for companies with long-haul infrastructure in the ground.