U.S. natural gas futures have fallen from a 26-month high hit last month in part due to investor worries that slower economic growth could reduce the amount of gas needed to power data centers and artificial intelligence (AI) in coming years.
Analysts have warned that the fallout from U.S. President Donald Trump’s on-again off-again trade tariffs could stymie Big Tech’s data center spending spree.
Although AI is expected to remain a main contributor to an forecast increase in power demand in coming years, with electricity powering the computers and cooling equipment used in data centers, analysts are mixed on whether U.S. energy firms will burn more gas to produce electricity.
Some believe the amount of gas used to generate electricity will rise with growing power demand, while others, including the U.S. Energy Information Administration (EIA), have projected that 2024 was the peak year for gas-fired power generation.
The EIA said gas’ share of U.S. power generation would fall from 42% in 2024 to 40% in 2025 and 2026 as more renewable sources of energy, like wind and solar, enter service.
The agency forecast the percentage of U.S. power that comes from renewables will rise from 23% in 2024 to 25% in 2025 and 27% in 2026.
“The AI story was – and remains – more bullish for electricity than natural gas,” analysts at energy consulting firm EBW Analytics said in a note.
In March, gas futures prices for the next 12 months, known in the energy industry as the 12-month strip, jumped to a 26-month high of $4.93 per million British thermal units (mmBtu) as investors bet U.S. LNG exports and gas-fired power demand for data centers and AI would soar.
But the strip dropped to an 11-week low of $3.73 per mmBtu on Tuesday, even though LNG exports were on track to hit a record high in April.
“The weakening AI demand outlook is mildly bearish relative to expectations six months ago — and may be a contributor in the shake-out in the speculator bullish positioning sending NYMEX gas futures sharply lower,” analysts at EBW said.
U.S. bank Wells Fargo on Monday released a report saying Amazon had halted some data center leasing talks, after a similar pullback by Microsoft.
In addition to the fall in gas futures prices, Bob Yawger, director of energy futures at Mizuho, said company share prices of “pipelines delivering natural gas to the utility, and the independent power producers delivering power for the AI data center buildout theme took a beating on Monday.”
(Reporting by Scott DiSavino; Editing by Kirsten Donovan)