Rystad: Explosive Data Center Growth Drives Natural Gas Surge

Power demand from new data center installations in the United States is expected to grow by 1,000 percent from the end of 2024 through 2035, according to a new study from Norwegian research firm Rystad Energy. Natural gas power plant expansion is projected to become the largest source powering the data center growth, most of which is driven by rapid advancements in AI technology and growth in cloud computing services.

“The US power sector is entering a critical growth phase. Meeting the demands of data centers while balancing investments in natural gas and renewables will shape the industry’s path forward. Without targeted action, rising costs and energy shortages could pose significant challenges for both consumers and industry,” the company said in a release.

Natural Gas Advantages Over Nuclear, Geothermal

Rystad’s findings are consistent with a story I wrote here last October, based on articles by both Bloomberg and the Wall Street Journal, along with remarks delivered by BP CEO Murray Auchincloss to investors the last week of that month.

“Hyperscalers are driving crazy demand into natural gas right now,” Auchincloss said during that investor call, adding, “I’m pretty optimistic on natural gas prices through the decade.”

The story referenced in the Wall Street Journal focuses on the fact that some of the tech firms looking to secure their power needs had a preference for either nuclear and geothermal power, mainly due to their low emissions footprints. But the ability to source geothermal remains largely experimental and is dependent on where the demand center is located.

Nuclear also becomes problematic in the near term given the reality that permitting alone for a large-scale nuclear plant can take up to 15 years or longer to complete. That compares to timelines for a new large-scale natural gas plant, which can take less than half that time. In states like Texas, where permitting processes are highly efficient, it is even possible to build new natural gas capacity in just 2 to 3 years from cradle to grave. Natural gas also has significant cost advantages over both nuclear and geothermal and can be near-zero emissions if successfully paired with a carbon capture and storage project.

Citing a recent report from the U.S. Department of Energy (DOE), the Journal notes that some cost overruns related to nuclear power plants relate to the lack of new projects built in recent years rather than any problem with the technology itself. This lack of action has resulted in what DOE calls a lack of “muscle memory” in the industry related to mounting such huge projects. “A lack of frequent projects also means that nuclear-trained workers are aging or have moved on to other industries,” the Journal writes, adding, “Before Vogtle Units 3 and 4, the newest reactors in the U.S., the most recent nuclear project construction started in 1978.”

As a result of these factors and more, all indications last October were that rapid data center expansion would most likely result in a near-term boom in new natural gas plant construction, and potentially a boom in new nuclear generation in the longer term beginning in the 2035-2040 time frame. Rystad adds that the U.S. could see a “limited increase in the short term via reactor repowering and technology upgrades,” citing Microsoft’s recent deal with Constellation Energy to restart Unit 1 of the Three Mile Island facility to power its nearby planned data centers.

Rystad Study Confirms Natural Gas Primacy

While the tech companies driving the data center expansion initially had a heavy focus on powering them with wind and/or solar combined with stationary battery backup, many quickly realized those generation sources could not meet their needs unless and until prevailing battery technology sees a significant advance.

Rystad points to the reality that, “Data centers have stringent ‘five-nines’ uptime standards (99.999% availability), equating to less than five minutes and fifteen seconds of downtime annually. Energy reliability constraints require developers to secure either front-of-meter connections to highly reliable grids or behind-the-meter connections to firm (non-intermittent) energy sources.” Obviously, neither wind nor solar meet the “non-intermittent” test included in that analysis, even when backed up by current battery technology.

Rystad also identifies challenges many renewable energy projects are currently experiencing being tied into power grids, noting that, “renewable energy projects face unique deployment challenges in the US due to limited transmission availability.” The authors — Marina Domingues, vice president, head of US New Energies Research and Surya Hendry, analyst, New Energies Research — add that, [o]ver 2 terawatts of potential energy projects, mostly made up of renewable resources, await grid interconnection approval. Many of these will never achieve commercial operation as, historically, the approval rate for queued projects has hovered around 15%.”

On the other hand, the authors do point out that some data centers “may opt for renewable energy sources that can be rapidly deployed to meet oncoming demand, so long as it is mixed with baseload sources to meet their 24/7 requirements.” It’s an option that could enable the data center operators to a least partially satisfy their emissions reduction commitments while still meeting their “five nines” uptime power requirements.

These and other factors combine to explain Rystad’s finding that, “[t]he inventory of planned gas generation projects within the utility sector – with the exclusion of independent power producers – has increased from 6 GW in late 2023 to a staggering 17.5 GW currently, the highest since 2017. These plans can be linked to either population growth or increases from data center demand.”

The Bottom Line: Natural Gas Fills The Most Needs

In the end, Rystad’s researchers reach the same conclusion Auchincloss and BP identified in October: When one examines data center power needs and the array of available power generation sources, the prospects for a major expansion of natural gas capacity in the coming decade seem almost certain. Fortunately for the tech companies driving the data center expansion, no country on earth can rival the scale of natural gas resource than that beneath the ground in the United States.