Could an AI-fuelled boom in gas demand threaten the economics of US LNG exports?
Can the United States produce enough natural gas to service the coming new wave of liquefied natural gas (LNG) export projects and an anticipated explosion in data center power demand?
With US shale producers throttling production due to a lack of demand and flatlining prices, this might seem like an odd question. To be clear, there is no credible risk of physical gas shortages arising from either LNG exports or power generation this side of 2030.
But if bullish forecasts of an AI-fuelled power demand surge prove accurate, wholesale gas prices are likely to creep a lot higher in the next few quarters.
That’s great for gas producers, but it could make American LNG exports uneconomic in oversupplied global markets.
What is good for the gas industry is not so good for LNG exporters
As Energy Flux has reported, the ongoing global buildout of new LNG supply projects is depressing futures prices in major LNG-importing regions.US LNG margins have fallen sharply from 2022 highs as Europe recovered from the loss of Russian gas, but ultra-cheap shale gas keeps cargoes in the money.
That is why the American gas industry is getting excited about a proliferation of data centers driving demand for gas-fired electricity.
All of this is causing a rethink for gas producers as the shine is starting to come off LNG for US shale drillers. Until recently, LNG exports were hailed as the next great opportunity for U.S. gas. Now, major gas producers, such as EQT Corporation, are considering pivoting away from LNG to AI-fuelled power as the cornerstone of their long-term business strategy.
EQT CFO Jeremy Knop warned investors on the company’s Q1’24 earnings call that LNG commodity exposure can be problematic for upstream producers.
The data centers will create a lot more consistent demand than the more volatile LNG market.
“If you sign up for too much LNG and that [arbitrage] is negative for a couple of years, it’s like a very, very expensive pipeline contract. You can get yourself into trouble with that,” Knop said.
The data centers, he said, will create a lot more consistent demand than the more volatile LNG market. That sort of stability is something that we really try to focus on in our business as we build it for the long term,” he added.
‘The era of flat power demand is over’
Demand for power from America’s data centers is insatiable. American data centers consumed 126 TWh of electricity in 2022, accounting for 2.5% of US power demand. Consultancy Boston Consulting Group (BCG) expects that to grow to between 335 and 390 TWh (6.5% or 7.5%) in 2030, driven mostly by the power needs of generative AI (GenAI).
Data center growth was already on a tear thanks to corporate outsourcing to cloud computing, cryptocurrency mining, smartphone apps, and 5G technology.
But the race to scale up computationally-intensive GenAI capability takes this to a whole new level — and the data centers themselves are becoming more energy-intensive as they strive for the greater computational capability to undertake high-end GenAI tasks such as image and video generation.
Ten utilities and grid operators — including ERCOT, PJM, SPP, Duke Energy (North and South Carolina), Georgia Power, and NYISO — are together preparing for an 18 GW increase in peak summer demand for 2028. These increases are “shockingly large”, said Grid Strategies, a consultancy, in a December report titled ‘The Era of Flat Power Demand is Over’.
The combination of data center expansions, coal-to-gas switching in the power sector, electric vehicle charging, and natural gas liquefaction on the Gulf Coast is causing a surge in demand across America.
EQT executives talk excitedly about a big AI-fuelled energy “deficit,” turning regions like the southeast of America into “the most premium market in the country” for natural gas.
Could an AI-fuelled gas deficit drive US wholesale gas prices higher? And if so, what would this mean for the competitiveness of US LNG in global gas markets — which are about to be inundated with a new wave of LNG supply projects from Qatar, Canada, and elsewhere?
Read the full article at EnergyFlux.news
Energy Flux is a weekly newsletter analyzing global natural gas markets, energy economics and geopolitics through the lens of Europe’s net-zero journey. The publication scrutinizes movements in wholesale gas and LNG (liquefied natural gas) prices and their impact on energy sector decarbonisation pathways.
