Rising Electric Demand Is Driving a Resurgence of Natural Gas Capacity

In the first half of this year, U.S. energy producers revealed plans to expand gas-fired capacity, surpassing the total announced for all of 2020. This surge is largely driven by growing demand from data centers supporting artificial intelligence (AI), new manufacturing projects spurred by the Inflation Reduction Act, and electric vehicle mandates introduced by the Biden-Harris administration. Projections suggest that electricity consumption for AI data could increase tenfold by 2030, while the demand for electric vehicles may double electricity generation needs. If the latter half of the year mirrors the first, 2024 will mark the highest level of newly announced gas power generation since at least 2017. Just a few years back, the Biden-Harris administration emphasized wind and solar as the future of energy, despite challenges related to their intermittency and the costs associated with backup battery storage. While renewable energy continues to progress, utilities recognize the necessity of new gas-fired generation to bridge the gap.

For the upcoming capacity in 2024, Texas leads in new generation projects, and the Southeast is poised to add the most natural gas resources. Over 200 gas units are under development across the country, aiming to bring online 86 to 100 gigawatts of reliable natural gas capacity by 2032. One forecast indicates that the demand for natural gas in the power sector could rise by as much as 30 percent by 2030. For instance, GE Vernova Inc. expects its gas turbine production capacity to increase by one-third increase. Additionally, some power companies plan to retire gas plants at a slower pace than previously expected.

The availability of inexpensive natural gas, thanks to fracking and horizontal drilling, has supplanted coal as the primary baseload fuel for electricity generation, resulting in lower carbon dioxide emissions. Natural gas has been promoted as a “bridge fuel,” providing a less carbon-intensive option for transitioning away from fossil fuels. Gas plants also support the variable output from wind and solar energy, which benefit from significant government subsidies and are mandated in many states. These natural gas facilities play a crucial role in maintaining grid reliability, which is increasingly challenged by the intermittent nature of weather-dependent wind and solar sources.

Companies are reassessing their decarbonization targets, effectively reversing years of planning for a future with reduced fossil fuel use. For instance, Berkshire Hathaway Inc.’s PacifiCorp now anticipates a 63 percent decrease in carbon emissions from 2005 levels by 2030, down from an earlier forecast of 78 percent. This adjustment is largely attributed to increased demand projections and the relaxation of certain regulatory requirements. This year, PacifiCorp announced it will add over five gigawatts of new natural gas generation while canceling approximately seven gigawatts of renewable energy projects over the next 20 years. A spokesperson for the Warren Buffett-owned utility indicated that the shift towards gas is largely due to plans to convert some coal units to gas, and emphasized that the company still aims to achieve an 80 percent reduction in carbon dioxide emissions by 2035, with a target of 100 percent by 2050.

However, not all proposed plants make it to construction or connect to the grid. Last year, around 10 gigawatts of previously planned projects were canceled, in contrast to nearly 45 gigawatts that were announced. According to estimates from Berkeley Laboratory, approximately one-third of interconnection requests historically result in operational gas plants, which is significantly higher than the 20 percent for wind and 13 percent for solar.

In light of increasing electricity demand, some governments are attempting to limit AI infrastructure development. In Ireland, which hosts over 80 data centers and serves as a major tech hub for Europe, new construction around Dublin has effectively been banned. This is due to data centers consuming nearly one-fifth of the nation’s electricity and concerns that further expansion could strain the electric grid. As noted by the Irish minister, data centers must operate “within climate limits.”

Biden-Harris Policies Hurt AI Growth

Chevron CEO Michael Wirth criticized the Biden-Harris administration for what he described as “attacks on the natural gas” industry and emphasized the crucial role of Permian natural gas in powering the rapid growth of AI. The Permian basin is the biggest U.S. oilfield and accounts for 15 percent of the nation’s gas output. U.S. technology companies are seeking to secure a shrinking supply of electricity for their rapidly expanding data centers and need reliable gas-powered electricity.

The issue is that there are new Biden-Harris government plans for policies to prevent AI data centers from undercutting U.S. climate goals. Last week, the White House launched a task force on AI center infrastructure to coordinate policies in line with the government’s economic and environmental goals. According to the White House, the task force led by the National Economic Council, the National Security Council, and others, will coordinate policies to advance data center development while weighing economic, national security, and environmental goals. The Biden-Harris administration has asked technology companies to invest in new climate-friendly power generation to cover their increasing demand because the demand from AI could complicate its target of decarbonizing the power sector by 2035.  Meanwhile, AI companies are seeking agreements with merchant nuclear power plants to secure steady supplies to feed their growing need for electricity.

Wirth also said the Biden administration’s approach to pause liquefied natural gas exports “elevates politics over progress.” In January, Biden announced the pause on approvals for pending and future applications to export LNG from new projects. He argued that a moratorium on LNG exports would increase energy costs, threaten reliable supplies, and slow the switch from coal to natural gas, leading to more emissions rather than less. “The case for natural gas is so strong that only politics can get in the way,” he said.

Amid the global desire to decarbonize, Wirth stressed the need for a stable and predictable policy environment to ensure gas remains a reliable energy source. He outlined three pillars for a balanced energy future: political support for gas as a key to a lower carbon future; recognition of the progress made in deploying new technologies and gas solutions; and understanding that the energy transition requires unprecedented innovation and collaboration.

Conclusion

Rising electricity demand from AI data centers, new manufacturing plants, and EV mandates and regulations of the Biden-Harris administration are driving new capacity additions for natural gas plants. More than 200 gas units are in various stages of development across the United States with plans to start up 86 to 100 gigawatts of reliable gas capacity between now and 2032. One estimate has power-sector demand for natural gas rising as much as 30 percent by 2030 from today’s level. In addition to building new plants, some power companies will retire gas plants at a slower rate than previously expected to meet demand. Natural gas can supply baseload power 24/7 and backup intermittent and weather-driven wind and solar units, emitting less carbon dioxide emissions than coal-fired plants.