US Gas Producers Prepare to Pounce on Data Center Demand - Energy Intelligence

US Gas Producers Prepare to Pounce on Data Center Demand | Energy Intelligence
Gorodenkoff/Shutterstock Save for later Print Download Share LinkedIn Twitter With experts predicting that US data center hot spots will strategically emerge in close proximity to natural gas basins, producers are adjusting their short- and long-term plans accordingly.After more than a decade of stagnant US power demand, the artificial intelligence (AI) revolution is expected to fuel the nation’s increased appetite for electricity. “The power needed for AI and the massive data centers being built today and planned for the near future require affordable electricity that is available without interruption 24 hours a day, 365 days a year,” Kinder Morgan Executive Chairman Richard Kinder told analysts last month. And that likely means the buildout will occur in regions with ready access to gas. "If you’re a Microsoft or Google, you want that power as close to your facility as possible.”Enter the country's large independent gas producers. With acreage spread across the Anadarko Basin and Marcellus Shale, Coterra Energy is watching the AI developments closely.“Lots of the demand looks like it’s going to come on the East Coast,” COO Blake Sirgo said last week. “That’s very proximal to our assets. There’s a lot of existing pipes there that can easily get our gas to those markets. And we’re very interested. We’re talking to a lot of these folks directly trying to understand their business and their needs.”Coterra CEO Tom Jorden said he has seen forecasts for incremental gas demand spanning 3 billion cubic feet per day to 30 Bcf/d by 2030, and “we will welcome increased demand anywhere within that range.”Tier 2 BasinsIn so-called Tier 2 basins such as the Anadarko, West Rockies and Barnett Shale, East Daley Analytics had modeled gas production declines before accounting for expected demand growth from data centers.Now, “producers there can basically maintain current production levels,” East Daley Senior Director Jack Weixel told Energy Intelligence. “We also grow the Eagle Ford Shale more aggressively than we did in 2023. If we end up too conservative on the demand side, then Tier 2’s stand to grow even more.”Roland Burns, CFO of Haynesville Shale producer Comstock Resources, said the emerging market provides an opportunity for diversification, especially for its western Haynesville production.“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,” he said. “I think we'll be selling a lot of that gas in the future to our direct customers and then potentially using our relationship in the midstream venture to add some infrastructure as needed to be able to service those.”Meanwhile, the AI-driven market prospect has Range Resources doubling down on its focus on gas-rich Appalachia. “As this data center demand opportunity further materializes, … we feel like it's going to be more regional to an Appalachian producer like Range,” CEO Dennis Degner said. “We feel like this further supports developing our Marcellus, and then in the decades to come our Utica and then later after that, the Upper Devonian. So I think it puts us in a great position to not need to have other basin exposure.”Chesapeake CircumspectChesapeake Energy is expressing a bit less enthusiasm about the data center buildout than its peers and is doubling down on its strategy to secure exposure to growing LNG export markets first.During Chesapeake’s May 1 quarterly earnings call, one analyst noted that any slide on AI was conspicuously absent from the corporate presentation — a contrast with that of rival EQT. CEO Nick Dell’Osso in response called the data center opportunity "very real and very interesting. [But] there’s a lot to unpack to understand exactly how and when and where that demand will show up. We do think there will be competition for supply. We think we’ll have ample gas to supply all of the markets where there will be demand. … But we’re not changing anything."Dell'Osso added that Chesapeake’s pending merger with Southwestern Energy — the completion of which has been stalled by inquiries from the US antitrust watchdog — will create “the largest production base in both Appalachia and the Haynesville” and provide some flexibility for the combined company.“We talked a lot about growth and demand for Haynesville gas flowing to the LNG corridor, but we deliver a lot of gas to Perryville, [Louisiana], every day, which is directly east of our field," he said. "From there, it connects into a series of pipeline networks that feed the Southeast," where much of the AI-driven electricity demand is expected.Grid Constraints? During a webinar Wednesday, Weixel said East Daley's 2.5 Bcf/d data center demand growth outlook is conservative. “We know that renewables cannot handle this new demand on their own, but one of the things that we’re looking at pretty intently is: Do you have the transmission infrastructure? And can you build generating capacity — especially for gas — to satisfy this data center load?”“I’m mostly referring to grid tie-ins and [electric] transmission,” Weixel later told Energy Intelligence. “Tie-in queues are downright awful. You’ve got low-capacity-factor renewable projects standing in line like Swifties outside an autograph signing. How many gas plant projects are going to be able to stand in that line as it gets longer and longer as each year goes by?”He explained serving power demand growth from data centers would require about 25 combined-cycle gas-fired power plants of about 600 megawatts each. “That’s more power plants than Enron constructed in the 90’s under a much more friendly regulatory regime,” he said. “I can understand the case for more fully utilizing the current gas fleet, but that means you need to stop retiring those units. There’s currently about 15 gigawatts of scheduled gas retirements through 2030, which mostly consist of [combustion turbine] units," Weixel said. "You can’t retire those and maintain ‘always on’ power demand from data centers. Similarly, you can put data centers next to nukes all day long, but the power that is diverted to those data centers from nukes needs to be replaced by something. And that something has got to be new gas-fired units. Or, you don’t retire coal.”While infrastructure acts as a headwind, Weixel said some AI demand growth may be disguised as commercial demand growth, of which East Daley projects a 0.8 Bcf/d increase by 2030.“We think those folks might be more able to power up data centers in the near term using direct laterals behind the [utility] citygate,” he explained. “It’s not a preferred option by the environmental crowd, including regulators especially in the Northeast, Mid-Atlantic and Silicon Valley. But it may be their only choice because power transmission queues are so out of control.”