Fueling the Future: Natural Gas and the Rise of Data Center Power Demand

The rapid expansion of data centers, driven by the emergence of artificial intelligence, is set to significantly increase energy demand in the coming years.  Midstream natural gas companies with pipeline networks and infrastructure expertise in the southern United States, such as Woodway Energy Infrastructure based in Houston, are well-positioned to capitalize on this growth opportunity. They provide reliable and efficient energy solutions to natural gas end users, including data centers.

Enverus Intelligence® Research (EIR) projects that data center power demand will grow by 14 GW from 2023 to 2030 in a base case scenario. This growth is equivalent to 2 Bcf/d of natural gas power if fully serviced by gas-fired generation¹. By 2050, the growth in data center demand will necessitate an additional 153 GW of capacity¹. This surge in demand presents a significant opportunity for energy markets and tech companies to collaborate in meeting the power requirements of expanding data centers.

The five-year load-growth forecast for data centers has increased nearly fivefold in the past two years, reaching almost 128 GW¹. In Northern Virginia’s “Data Center Alley,” power demand could rise from about 4 GW today to 15 GW by 2030. This could potentially account for half of Virginia’s total electricity load¹. Similarly, in Texas, data centers could make up roughly half of the new power demand expected to drive summer grid peaks from 86 GW today to approximately 150 GW by 2030¹.

Utility companies across the United States are reporting substantial increases in potential load connected to their systems, largely attributed to artificial intelligence-driven data center  growth. Oncor, for example, reported 103 GW of potential load, with AI and data centers accounting for about 82 GW of that demand, up from 59 GW in August¹. Georgia Power’s load forecast over the coming decade has tripled from 12 GW last year to 36.5 GW today. Large loads, including data centers, account for 34.6 GW of the expected demand².

Key Takeaways

• The rapid growth of AI and data centers is driving a significant increase in energy demand, with projections indicating a fivefold increase in the five year load growth forecast over the past two years.
• Midstream natural gas companies with extensive pipeline networks are well positioned to meet the rising power demands of data centers, providing reliable and efficient energy solutions.
• Utility companies across the United States are reporting substantial increases in potential load connected to their systems, primarily due to the expansion of AI and data centers.
• Collaboration between energy markets and tech companies is crucial in meeting the power requirements of expanding data centers and ensuring a stable and sustainable energy supply.
• The growth of data centers presents both challenges and opportunities for grid stability, emission reduction, and the integration of renewable energy sources.

Introduction

The United States is undergoing a significant transformation in its power sector, with data centers at the forefront. These facilities are driving a surge in electricity demand. The nation’s electricity consumption is projected to exceed 4,200 terawatt-hours (TWh) for the first time in 2024, with data centers leading this change³. By the end of 2023, data centers had a capacity of 22 gigawatts (GW), accounting for nearly 40% of global demand³.

The expansion of data centers is expected to continue, with an additional 60 GW of capacity anticipated in the US by 2035³. This growth will lead to a significant increase in power use, from 130 TWh in 2023 to up to 450 TWh³. By the end of the decade, data centers are projected to consume 11-12% of total U.S. power demand, a substantial increase from the current 3-4%⁴.

To accommodate this data center growth, over $500 billion in investment will be needed for data center infrastructure by 2030⁴. The U.S. data center demand is expected to grow from 25 GW in 2024 to more than 80 GW by 2030, with electricity demand increasing by about 400 terawatt-hours at a CAGR of approximately 23%⁴.

The impact of data centers on the power grid is substantial, with estimates suggesting they may contribute to 30-40% of all net new electricity demand between now and 2030⁴. This unprecedented growth presents both challenges and opportunities for the energy sector. It must meet the increasing power requirements of these digital infrastructure hubs while ensuring sustainability and reliability.

The Growing Energy Needs of Data Centers and AI

The rapid expansion of data centers and the rise of AI are driving unprecedented growth in energy demand. Investment in new data centers has doubled in the past two years in the United States. Tech giants Google, Microsoft, and Amazon have invested more than the entire US oil and gas industry in 2023, totaling around 0.5% of US GDP⁵. This surge in data center development is putting significant pressure on the energy sector, as these facilities require substantial amounts of power to operate.

Data Center Expansion and Its Impact on Energy Demand

Data centers have become integral to our digital infrastructure, supporting everything from cloud computing to streaming services. As our reliance on these facilities grows, so does their energy consumption. In the United States, data centers consumed about 4.4% of total electricity in 2023, and this figure is expected to climb to between 6.7% and 12% by 2028⁶. Globally, data centers currently account for around 1% of electricity consumption, with annual electricity usage equivalent to approximately 350,000 to 400,000 electric cars⁵.

AI Workloads and Their Unique Power Requirements

The rise of AI is adding another layer of complexity to the energy equation. AI workloads require specialized hardware and massive amounts of computing power, leading to even greater energy demands. AI datacenter capacity is projected to have a compound annual growth rate (CAGR) of 40.5% through 2027, with energy consumption forecast to grow at a CAGR of 44.7%, reaching 146.2 Terawatt hours (TWh) by 2027⁷. While efficiency of AI-related computer chips has doubled roughly every 2.5 to 3 years, with a modern chip using 99% less power for the same calculations as one from 2008, the sheer scale of AI deployment outweighs efficiency gains and is driving up overall energy needs⁵.

Challenges in Meeting AI-Driven Power Needs

Meeting the growing power demands of data centers and AI presents significant challenges for the energy sector. Global aggregate electricity demand is expected to grow by 6,750 terawatt-hours (TWh) by 2030, exceeding the combined demand of the United States and European Union today⁵. This will require substantial investments in energy infrastructure, including transmission infrastructure and renewable energy sources. Balancing the need for reliable, affordable energy with sustainability goals will be a key challenge as the world navigates this new era of AI-driven power demand.

As we look to the future, it’s clear that the energy needs of data centers and AI will continue to shape the global energy landscape. Meeting these demands while transitioning to cleaner, more sustainable energy sources will be critical to powering the digital revolution while mitigating its environmental impact.

Why Natural Gas Is Key to Data Center Growth

The surge in demand for data center services underscores the imperative for dependable and efficient energy sources. Natural gas demand has emerged as a pivotal element in fueling data center expansion, outshining other energy options. 

Efficiency and Reliability of Natural Gas for Large-Scale Operations

Natural gas-fired power plants stand out for their unmatched efficiency and reliability, making them the preferred choice for large-scale data center operations. These plants can swiftly adjust to meet the fluctuating electricity demands from data centers, ensuring a consistent and uninterrupted power supply. Natural gas supplied power plants occupy less space compared to other fossil fuel-based plants, facilitating more efficient land use and diminished environmental impact⁹.

Natural Gas vs. Alternative Energy Sources

Renewable energy sources like solar and wind are gaining popularity, yet they face challenges in terms of intermittency and storage. Typical solar power generation site capacity factors are between 10% and 25%.  In contrast, natural gas provides a dependable baseload power, with combined-cycle natural gas facilities running at capacity factors of 80% or more, and peaking facilities with rapid dispatch, meeting the needs of data centers, which operate 24 hours a day, and that can complement the intermittency of renewable sources. Utility companies are planning 17.5 GW of new natural gas capacity, the highest since 2017, to meet the increasing demand from data centers⁸. This underscores the essential role of natural gas in maintaining a stable and sustainable energy mix for the power sector.

Examples of Natural Gas-Powered Data Centers

Major pipeline companies have identified the vast potential of natural gas in powering data centers.  As the power sector evolves to meet the escalating energy needs of data centers, natural gas remains a critical component in ensuring reliable, efficient, and sustainable power generation. Its capacity to support data center growth and the required data center reliability, while complementing renewable energy sources positions natural gas as a vital element in shaping the industry’s future.

Natural gas is essential for maintaining grid stability and preventing outages. Its efficiency and reliability make it ideal for large-scale data center operations. 

Decentralized Energy Grids for IT Infrastructure

Decentralized energy grids, powered by natural gas, present a viable solution for IT infrastructure. The appeal of accessing producing basins, such as the Permian Basin gas, is increasing over proximity to telecom for data center siting. By utilizing natural gas resources near data centers, operators can ensure a stable and reliable energy supply. This minimizes the risk of outages caused by transmission disruptions as outlined by Woodway Energy in “Natural Gas Role in the Era of Renewable Power Generation Resources”..

How Combined Heat and Power Systems (CHP) Improve Resilience

Combined Heat and Power (CHP) systems, fueled by natural gas, represent a highly efficient and resilient energy solution for data centers. These systems generate electricity and capture waste heat for cooling or heating, achieving efficiencies of up to 80%⁹. This increased efficiency not only reduces energy costs but also enhances grid resilience by lowering overall demand on the electricity grid.

CHP systems can operate independently of the grid during outages, ensuring uninterrupted power supply to critical IT infrastructure. Their ability to island from the grid and maintain operations significantly improves resilience against power disruptions¹⁰.

Natural Gas as a Bridge to Renewable Energy Integration

Natural gas is gaining prominence as a transitional fuel towards cleaner energy for data centers. Its superior efficiency, reliability, and lower emissions profile make it a favorable choice for large-scale operations. As wind and solar energy gain traction, natural gas acts as a bridge fuel. It ensures a stable power supply, facilitating the integration of renewable energy alternatives¹¹. Natural gas pipelines are essential for delivering this critical resource reliably and efficiently to data centers nationwide.

Innovations in Natural Gas Technology for Sustainability

Advancements in natural gas technology are enhancing its sustainability in powering data centers. Technologies like Combined Heat and Power (CHP) systems significantly boost operational efficiency by utilizing waste heat for additional energy generation. Progress in carbon capture and storage technologies is reducing the environmental footprint of natural gas combustion. These developments position natural gas as a cleaner energy option for the future.

Looking Forward – Data Center Power Solutions

The energy sector is undergoing significant transformations to cater to the burgeoning needs of data centers and AI applications. The trend towards integrating renewable energy sources, such as wind and solar, is expected to intensify. The adoption of decentralized energy grids and microgrids is also on the rise, offering enhanced resilience and flexibility in power supply for critical IT infrastructure.

Looking forward, the energy sector must continue to innovate and adapt to the unique power demands of data centers and AI workloads while prioritizing sustainability. A judicious blend of clean energy solutions, including natural gas as a bridge fuel and the integration of renewable sources, is crucial. This approach will ensure a reliable, efficient, and environmentally responsible power supply for the future of AI and data-driven technologies.

For decades, gas pipelines and the nation’s electric utility infrastructure has thrived in a proven successful partnership.  Natural gas has been a key fuel source providing energy for the nation’s electricity needs that has powered America’s growth and thriving industries.  This important partnership will continue and be a key resource of energy for the data center growth and power needs.

Source Links

• https://www.canarymedia.com/articles/utilities/data-centers-are-driving-us-power-demand-to-hard-to-reach-heights
• https://georgiarecorder.com/2024/12/02/georgia-power-says-data-center-growth-will-cause-electricity-demands-to-triple-in-next-decade/
• https://thundersaidenergy.com/downloads/data-centers-electricity-use-and-demand-shifting/
• https://www.mckinsey.com/industries/private-capital/our-insights/how-data-centers-and-the-energy-sector-can-sate-ais-hunger-for-power
• https://www.iea.org/commentaries/what-the-data-centre-and-ai-boom-could-mean-for-the-energy-sector
• https://www.energy.gov/articles/doe-releases-new-report-evaluating-increase-electricity-demand-data-centers
• https://www.idc.com/getdoc.jsp?containerId=prUS52611224
• https://www.rystadenergy.com/news/us-power-data-centers-natural-gas-storage-solar
• https://www.aceee.org/sites/default/files/pdfs/Turning Data Centers into Grid and Regional Assets – Considerations and Recommendations for the Federal Government, State Policymakers, and Utility Regulators.pdf
• https://www.automation.com/en-us/articles/january-2025/enhancing-power-grid-resiliency
• https://www.sustainabilitybynumbers.com/p/ai-energy-demand