US gas industry pins hopes on AI power demand
US natural gas producers and pipelines have pivoted almost in unison this year to talking up what they see as one of the strongest bullish cases for gas this decade: surging electricity demand from yet-to-be-built data centers to power artificial intelligence software.
EQT, the largest US gas producer by volume, in an investor presentation last week called growing data center demand the "cornerstone" to the "natural gas bull case." Combining its own research with data from the US Energy Information Administration, the gas giant forecast an increase in gas demand of 10 Bcf/d (283mn m3/d) by 2030 to generate electricity, mostly to run data centers. Its more aggressive data center build-out scenario envisions a whopping 18 Bcf/d increase in gas demand through 2030. Total US gas production is currently about 100 Bcf/d.
Kinder Morgan, one of the largest US gas pipeline operators, this month forecast 20pc of US power being gobbled up by data centers in 2030, up from a 2.5pc share in 2022. Cobbling together projections from several consultancies and financial advisories, the company said the electricity needed to run artificial intelligence software alone will comprise 15pc of US power demand by 2030. If just 40pc of that demand is met by gas, that would represent an increase in gas demand of 7-10 Bcf/d, it said.
This is roughly in line with the high end of US bank Tudor Pickering Holt's forecast for gas demand to power data centers through 2030 (1.3-8.5 Bcf/d) and well above Goldman Sachs' and consultancy Enverus' projections of 3.3 Bcf/d and 2 Bcf/d, respectively.
New tech, old problems
Separating the wide ranges of these projections is the highly speculative nature of forecasting demand years into the future for competing energy sources to power next-generation technology. But the major upside and downside risks, analysts say, concern the more humdrum challenges of permitting and building out energy infrastructure.
Goldman Sachs expects 28GW, or 60pc, of the generation capacity needed to power new data centers through 2030 will come from natural gas — 9GW from combined cycle gas turbines and 19GW from gas peaker plants. But with an average lag of four years from the time a gas transmission project is announced to the time it enters service, to say nothing of the high probability of litigation being brought by environmentalists and landowners, construction and permitting timelines are "the most top of mind constraint for natural gas," the bank said.
Indeed, litigation and opposition from state regulators have ultimately led developers to call off several interstate pipeline projects in the eastern US in recent years. The exception to the rule, Equitrans' 2 Bcf/d Mountain Valley Pipeline is moving forward only because congressional action allowed it to bypass federal permitting hurdles. This is a particular problem for the gas industry's hopes of exploiting the data center boom, as a large share of future data centers are slated to be built in the southeast US, far from the major US gas fields.
New data centers representing 2 Bcf/d of gas demand in Georgia probably requires a new pipeline into the southeast, FactSet senior energy analyst Connor McLean said.
Southeast premium
A significant data-center buildout in the southeast without new pipelines could put upward pressure on regional gas prices, McLean said.
This could exacerbate the effects of what has become perhaps the most prominent bullish case for US gas: a massive build-out of LNG export terminals along the US Gulf coast. With new export terminals pulling increasing volumes of gas south along the Transcontinental gas pipeline to super-chill and ship overseas in the coming years, the build-out in data centers will likely produce "an even bigger deficit in that southeast (gas) market," EQT chief financial officer Jeremy Knop told investors last week.
"We think that market really, in time, becomes the most premium market in the country," he said.
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Q&A: Brazil adds Asian indexation for flexible gas
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Sao Paulo state seeks biomethane boost
Sao Paulo state seeks biomethane boost
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Banks’ 2023 fossil fuel funding rises to $705bn: Study
Banks’ 2023 fossil fuel funding rises to $705bn: Study
London, 13 May (Argus) — Fossil fuel financing by the world's 60 largest banks rose to $705bn in 2023, up by 4.8pc from $673bn in 2022, with the increase largely driven by financing for the LNG sector. This brings the total funding for fossil fuels since the Paris agreement was signed in 2015 to $6.9 trillion. The 15th annual Banking on Climate Chaos (BOCC) report was released on 13 May by a group of non-governmental and civil society organisations including the Rainforest Action Network and Oil Change International, and it analyses the world's 60 largest commercial and investment banks, according to ratings agency Standard and Poor's (S&P). Funding had previously dropped in 2022 to $673bn from $742bn in 2021, but this was because higher profits for oil and gas companies had led to reduced borrowing. JPMorgan Chase was the largest financier of fossil fuels in 2023 at $40.9bn, up from $38.7bn a year earlier, according to the report. It also topped the list for banks providing financing to companies with fossil fuel expansion plans, with its commitments rising to $19.3bn from $17.1bn in 2022. Japanese bank Mizuho was the second-largest financier, increasing funding commitments to $37bn for all fossil fuels, from $35.4bn in 2022. The Bank of America came in third with $33.7bn, although this was a drop from $37.3bn a year earlier. Out of the 60 banks, 27 increased financing for companies with fossil fuel exposure, with the rise driven by funding for the LNG sector — including fracking, import, export, transport and gas-fired power. Developers have rallied support for LNG projects as part of efforts to boost energy security after the Russia-Ukraine war began in 2022, and banks are actively backing this sector, stated the report. "The rise in rankings by Mizuho and the prominence of the other two Japanese megabanks — MUFG [Mitsubishi UFG Financial Group] and SMBC [Sumitomo Mitsui Banking] — is a notable fossil fuel trend for 2023," the report said. Mizuho and MUFG dominated LNG import and export financing, providing $10.9bn and $8.4bn respectively, to companies expanding this sector. Total funding for the LNG methane gas sector in 2023 was $121bn, up from $116bn in 2022. Financing for thermal coal mining increased slightly to $42.2bn, from $39.7bn in 2022. Out of this, 81pc came from Chinese banks, according to the report, while several North American banks have provided funds to this sector, including Bank of America. Some North American banks have also rolled back on climate commitments, according to the report. Bank of America, for example, had previously committed to not directly financing projects involving new or expanded coal-fired power plants or coal mines, but changed its policy in late 2023 to state that such projects would undergo "enhanced due diligence" and senior-level reviews. The report also notes that most banks' coal exclusions only apply to thermal coal and not metallurgical coal. Total borrowing by oil majors such as Eni, ConocoPhillips, Chevron and Shell fell by 5.24pc in 2023, with several such as TotalEnergies, ExxonMobil and Hess indicating zero financing for the year. The BOCC report's finance data was sourced from either Bloomberg or the London Stock Exchange between December 2023 and February 2024. UK-based bank Barclays, which ranks ninth on the list with $24.2bn in fossil fuel funding, said that the report does not recognise the classification of some of the data. Its "financed emissions for the energy and power sectors have reduced by 44pc and 26pc respectively, between 2020-23," it said. In response to its increase in financing for gas power, "investment is needed to support existing oil and gas assets, while clean energy is scaled," the bank said. By Prethika Nair Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
APA defers FID for Australian gas pipeline's stage 3
APA defers FID for Australian gas pipeline's stage 3
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