According to a recent outlook from BloombergNEF, American data centers are projected to consume more natural gas than nearly all other countries in the next ten years, driven by increasing electricity demands resulting from the AI boom.
BloombergNEF estimates that natural gas usage for electricity generation in U.S. data centers will rise by 15 billion cubic feet per day by 2035. This projection considers that several planned data center projects may not come to fruition.
Stuart Turley, president and CEO of the Sandstone Group, explained that while the resource base and producer response seem adequate, there will be a shift toward more expensive dry-gas drilling. This shift may lead to moderately higher prices for both gas and electricity, compared to a scenario heavily reliant on oil prices and associated gas.
The increased demand could surpass the current natural gas consumption of all but a few countries, including China, Russia, Iran, and the U.S., based on data from the U.S. Energy Information Administration.
BloombergNEF’s latest estimates are double their earlier prediction from December, which anticipated an increase of just 6.9 billion cubic feet per day for data centers.
In fact, natural gas is expected to supply 69% of the electricity necessary for new grid-connected facilities, with consumption in the power sector expected to rise from about 36 billion cubic feet per day in 2025 to 54 billion by 2035.
BloombergNEF has not yet responded to requests for further comment.
Interestingly, a report highlighting the Cleanview Power Strategies indicates that natural gas will play a crucial role in powering AI-related expansion, as developers opt to circumvent grid delays by establishing their own behind-the-meter (BTM) power plants.
This anticipated increase comes at a time when grid operators are already grappling with soaring electricity demands from data centers, which are significantly contributing to tight supply-demand dynamics and high capacity prices, particularly noted by PJM Interconnection.
PJM, the largest power grid operator in the U.S., has signaled a shift from an excess electricity supply era to one of scarcity, particularly as data centers continue to come online. The construction of new natural gas generators can take four years or more, complicated further by permitting and transmission challenges, as highlighted in a recent PJM memo.
This strain isn’t confined to PJM alone; the North American Electric Reliability Corporation has also raised alarms about soaring electricity needs outpacing supply in various regions, heightening reliability concerns due to this influx of large demands, including data centers.
Addressing this new demand may necessitate considerable investments beyond merely constructing more power plants. For example, the projected costs associated with a transmission project to support Northern Virginia’s expanding data center landscape have nearly doubled, inciting concerns that consumers may ultimately bear some of these costs.
Despite worries regarding electricity expenses and growing local opposition, spending on data center construction surged by 57% year-over-year in July, as companies continue to invest heavily in AI infrastructure.
A decrease in associated gas would compel producers to depend more on higher-cost drilling focused on natural gas to satisfy increasing demand, which could result in rising natural gas and electricity prices.
The escalation in electricity usage constitutes just one aspect of the increasing competition for U.S. natural gas. New liquefied natural gas export terminals are expected to emerge as the leading contributor to U.S. gas demand through 2035, with the power sector taking second place.
This situation may exert pressure on American producers to significantly ramp up output. Projections indicate an increase in natural gas production by about 35 billion cubic feet per day between 2025 and 2035; however, producers will need an additional 11 billion cubic feet per day to satisfy the anticipated demand.
A substantial portion of U.S. natural gas is extracted alongside oil, especially in the Permian Basin, which means that oil market conditions can also affect the supply of gas. If oil prices were to dip below roughly $70 per barrel, drilling in the Permian could slow considerably, potentially restricting growth in associated natural gas production.
“If there’s profit to be gained, U.S. oil and gas producers will find a way to deliver,” Turley stated.
