Data centres to cause unexpected spike in US gas demand, bypassing all the trouble spots
North American gas prices are stuck in the mud, and have been for a while. Beyond the odd and brief flareup, producers have found ways to extract massive volumes by optimizing fracs, lengthening horizontal wells, etc., across wide shale plays with results that are at least somewhat repeatable.
This is a global anomaly, as there are higher value markets, such as the rest of the world, which is displaying a growing fondness for LNG (many don’t want to hear it, but contracts bear it out. See this report from Shell via the Canadian Energy Centre stating that global LNG demand is set to continue expanding beyond 2040. While this is Shell’s retro-centric view, it is one shared by most anyone that follows global energy markets save those for whom the phrase ‘natural gas’ associates with ‘fossil fuels’ and a peculiar obliviousness to reality reminiscent of the David Foster Wallace joke about an elderly fish greeting two younger fish with the comment, “Morning boys, how’s the water?” To which one young fish turns to the other and says, “What the hell is water?” In the human world, the equivalent is the inability to process our utter and dominant reliance on hydrocarbons.)
But I digress. Presently, there is a North American natural gas surplus whereby the product cannot find a home where it is appropriately (highly) valued. That is about to change. And, as so often happens, it is a sort of black swan event that few saw coming even a year ago.
The biggest reason natural gas can’t get to where it is coveted is because, as EQT CEO Toby Rice often points out, the war on infrastructure is particularly intense against any hydrocarbons. To build a pipeline that crosses state lines, or heaven forbid international ones, is to invite into the planning circle the wealthy likes of the Sierra Club whose squadrons of locust-lawyers have no purpose other than to make such projects impossible. It’s a fascinating way to live, but as self-appointed guardians of ‘the climate’, who are we to question them.
So here’s what’s about to happen. Like a crop of spring dandelions, AI-driven demand for data centres is everywhere, the talk of the town in energy circles. There is a corporate desperation to get on board with AI or fear being left behind. It’s true; the race is on, and soon people will be, for example, donning glasses or having phone apps that focus on any known object such as a building and AI will scrape the world’s data to tell you everything you’d want to know about it while you stand there dumbfounded on the sidewalk. Websites providing that info in the “traditional” way (if something a decade old can be called traditional) will be usurped and useless.
The value and profit potential of AI dwarfs paltry expense items like power cost, which is why we see huge tech companies willingly signing up for exorbitantly priced intermittent power or more-valuable-than-gold methane-from-cow-crap, because virtue signalling is totally this year’s colour. Power costs pale in comparison to what they make selling you data services or devices that you will ironically ditch in a landfill at about 20 percent of their useful life because the green tech gods have convinced you to buy a new one. (AI will be a master of everything except these sorts of ironies, which it will not be allowed to process. You just watch.)
The demand for AI is unfolding at an astonishing pace. Last October, in Kinder Morgan’s Q3 conference call, the CEO spoke passionately and excitedly (the default conference call voicing; the forced enthusiasm pioneered by K-Tel TV ads and Slap Chop infomercials) about natural gas demand’s growth in the US from new LNG terminals coming on stream. Barely six months later, in April of this year, he pivoted to speak of something else entirely: “data centers used about 2.5% of U.S. electricity in 2022 and are projected to use about 20% by 2030. AI demand alone is projected at about 15% of demand in 2030. If just 40% of that AI demand is served by natural gas, that would result in incremental demand of 7 to 10 BCF a day. Utilities throughout America are sounding the alarm, and one southeast utility announced its expectation that its winter demand would increase by 37% by 2031. 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. Now to put that in perspective, 10 gigawatts is about twice the power demand of New York City on a typical day. The overriding question is how to handle this increased demand.”
But these clever midstreamers know that any new interstate pipeline construction is highly unlikely, not in this lifetime. But that doesn’t mean AI will give up. It’s an unstoppable freight train, and it’s accelerating, and it might say it wants green power but what it means by that is “Give me whatever power you have and I’ll figure out the PR later.”
It’s one thing when knowledgeable trade experts like Kinder Morgan opine on the topic; they are dismissed as ‘fossil fuel shills’ and the message tends to get ignored by all except kooks who read conference call transcripts. It’s another thing when the mainstream press picks it up though. It takes them longer because they can’t comprehend an energy issue unless it is viewed through a green energy lens; simply accepting that growing AI will increase natural gas usage is along the lines of “What the hell is water?” They can’t process it, but they will accept the outcome if given the politically correct cloaking. The Wall Street Journal: “The clean-energy goals of companies and governments are running up against the need for projects to break ground fast. So far, climate advocates fear the imperatives of growth mean more fossil fuels. Georgia’s main utility, Georgia Power, has boosted its demand projections sixteen-fold and is pushing ahead on a hotly contested plan to burn more natural gas… One major source of disruption is data centers. The facilities are ballooning in size as people spend more of their waking hours online and companies digitize everything from factory processes to fast-food drive-throughs. All that computing requires power—and for firms like DC Blox to lock it in as quickly as possible. [DC Blox CEO] said, ‘Generally, we find the guys with the fastest power win.’ Similar quandaries are rippling through other hubs of the new American economy, with utilities in Tennessee and the Carolinas forecasting their own unexpected surges in load growth.”
You’re going to have to suck on that, ‘climate advocates’ (a moronic title that we can’t let seep into our lexicon, dumber than saying one is a ‘sun advocate’). AI won’t accept intermittent power, and it wants power yesterday.
The most likely way this unfolds then is that the data centres go to where the gas is. We should expect to see a boom in development around the big gas fields, with data centres hard wired to gas fields, thereby completely avoiding the gauntlet of hydrocarbon haters that have encircled every US regulatory agency. Just add natural gas powered generators to your data centre site and there you go, AI-ing your way to megabucks, all without enflaming a single activist lawyer.
One reason to think that argument will prove sound is because that is exactly what actual producers are saying will happen. Here’s the CFO of Haynesville producer Comstock Resources: “There’s a lot of potential customers that are approaching us, including recently even some data centers that really are looking to build their centers where they can have uninterrupted … power supply. So it’s an exciting new element to kind of add to the LNG demand and other industrial users, power generators… I think we’ll be selling a lot of that gas in the future to our direct customers…”
Natural gas demand is going to spike due to the fact that North America’s is the cheapest gas on the planet, and is relatively clean burning, and is plentiful at any price below $4.00/mmbtu (which is still a fraction of the average global price).
Adding that demand to new LNG export terminals is going to make for a very interesting situation whereby North America’s big gas fields are going to be pushed to perform, reliably, for decades, and also show the long-term growth that producers always insist they can deliver. We shall see.
A service dog for unhinged pyromaniacs
Good news out of the US. Someone has developed a flamethrower-wielding robot dog. Yep. The Thermonator, a bizarre metal dog that actually runs, with a bunch of whirling sensors where a head would be, delivers “on-demand fire anywhere! Free US shipping!” Footage of the trotting little cyborg is a weird juxtaposition of aw-isn’t-that-cute and 50 feet of flame. Can’t wait for AI to bring these things to life…
I’m also not sure what the target market is for a $9,420 flame-throwing robot dog. The sort of people I know that would appreciate and use it the most would probably have trouble justifying the cost, because stupid drunken party tricks have a sort of inherent budget limitation of half a paycheque or a few hundred bucks, whichever comes first, like a bad night at Stampede. It’s not really a city device, unless the makers come up with a cute little wiener dog version that can shoot maybe a few feet of fire. I’m pretty sure John Daly and Kid Rock would buy them…maybe Greta Thunberg when she gets arthritic and needs help at ‘the camera’s here arrest me’ protests… but beyond that it seems like it will be a tough sell.
Making it even more of a tough sell/sad story is if you just learned about Fire-Fido so soon after Mother’s Day. There’s always next year.
Pick up this Amazon bestseller, in one of their 400,000 subcategories, at various points in time. You most assuredly will blow your money on worse things in your life. I imagine. Available at Amazon.ca, Indigo.ca, or Amazon.com.
Read more insightful analysis from Terry Etam here, or email Terry here.