AI Data Centers Betting on Natural Gas Face Cost Backlash

CoinWorld reports:

As the construction of AI data centers accelerates, major tech companies in the U.S. are shifting more of their electricity demand to natural gas. However, research firm Noreva believes that this choice may lead to higher costs in the coming years, especially as the growth rate of U.S. natural gas supply slows and liquefied natural gas exports increase.

TechCrunch cites Noreva's forecast that prices at some natural gas delivery hubs in the U.S. could rise above $10 per million British thermal units in the future, while current prices in most regions are around $2 to $4.5, with the Henry Hub price in Louisiana being less than $3.

Tech Giants Invest in Self-Built Gas Power

In March of this year, Meta announced plans to build a 7.5 GW natural gas power plant in Louisiana to supply its Hyperion data center. A few days later, Microsoft and Google also announced plans to build gigawatt-scale natural gas power plants in Texas. Amazon plans to build a 7.6 GW gas power plant in Texas.

For these companies, which have long favored a light-asset model, the expansion of data centers has pushed capital expenditures toward physical infrastructure, further entrenching them in the energy market.

Price Upward Risks from Supply and Demand

Noreva CEO Peter Gardett stated that U.S. natural gas prices have remained stable over the past few years, primarily due to relatively steady demand, while new supply has continuously compensated for declining output from old wells. However, he expects that new supply will continue to increase in the future, albeit at a slower pace, and the costs of developing new wells are also rising.

He believes that two factors are fundamentally changing the market structure: first, the U.S. domestic natural gas market is becoming more connected to the global market, and second, the new demand brought by AI data centers.

Texas and Louisiana previously attracted tech companies due to cheap natural gas. Particularly in West Texas, many oil wells produce associated gas that previously lacked transportation pipelines, leading producers to often sell at a discount. With new pipelines being built, this natural gas is increasingly flowing to export markets.

Electricity Prices and Operating Costs May Come Under Pressure

Reports indicate that fuel costs account for about half of the generation costs of large power plants. If natural gas prices double or even triple, the operating costs of self-built power data centers will significantly increase.

This could lead to two outcomes: first, the cost of AI services could rise; second, some tech companies may turn to the public power grid, further driving up local electricity prices.

Noreva also warns that even if large tech companies can withstand higher gas prices, their consumption of natural gas may amplify external opposition to data centers. Many consumers are already concerned that data centers are driving up electricity costs, and this pressure may extend to natural gas bills in the future.

Gardett believes that if this trend continues, natural gas prices may even become a discussion variable in tech companies' earnings calls, indicating that the expansion of AI infrastructure is increasingly affected by fluctuations in the energy market.

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