As artificial intelligence continues to spike electricity usage, Wall Street predicts a significant increase in natural gas demand over the next decade due to the limitations of renewable energy alone in meeting societal power needs.
Wells Fargo forecasts that by 2030, the U.S. will see a daily increase in natural gas demand by 10 billion cubic feet, a 28% rise from the current daily consumption for power generation, accounting for 10% of total daily natural gas consumption in the U.S.
With the rise of the AI revolution, expansion in U.S. semiconductor and battery manufacturing, and the electrification of the automotive industry, Wells Fargo predicts a 20% increase in U.S. power demand by 2030, marking the end of a decade-long plateau in electricity growth.
In its April report, Wells Fargo estimated that AI data centers alone could increase U.S. power demand by about 323 terawatt-hours by 2030, which is seven times higher than New York City's current annual consumption. Goldman Sachs projected that data centers would account for 8% of total U.S. electricity consumption by the end of the decade.
To address the surging power demand, tech giants like Google and Microsoft have committed to powering their data centers with renewable energy. However, a report released in April by consulting firm Rystad Energy suggested that the variability of solar and wind energy might not suffice to meet the power load requirements.
Rystad Energy stated that there would be a need for an energy source that can fill the gap when renewable energy production is insufficient. In this scenario, the natural gas industry is betting on natural gas as the primary choice.
Richard Kinder, executive chairman of Kinder Morgan, America's largest natural gas pipeline operator, mentioned in the company's first-quarter earnings report: "Demand trends indicate a fatal flaw in emphasizing renewable energy as the only source of electricity in terms of meeting the actual needs of the market."
Projections from Goldman Sachs earlier in April indicated that natural gas is expected to account for 60% of the incremental power required to meet the demands brought on by artificial intelligence and data centers, with renewable energy covering the remaining 40%.
According to Wells Fargo, U.S. natural gas demand could rise by 10 billion cubic feet per day by 2030, which would represent a 28% increase from the current daily consumption of 35 billion cubic feet for power generation, accounting for 10% of the total daily U.S. natural gas consumption of 100 billion cubic feet.
Roger Read, one of the analysts who authored the Wells Fargo report, noted: "This is why people are increasingly optimistic about natural gas. That's a pretty high growth rate for a commodity."
Goldman Sachs predicts that by the end of this decade, daily natural gas demand will increase by 33 billion cubic feet, while Tudor, Pickering, Holt & Co.'s baseline assumption is 27 billion cubic feet per day, with a high assumption of 85 billion cubic feet per day.
Dominion, a major U.S. utility, proposed in its 2023 annual resource plan to add between 0.9 to 9.3 gigawatts of new natural gas-fired capacity over the next twenty-five years.
Dominion stated that gas turbines are crucial for filling gaps when the supply from renewables like solar declines.
"We're building a lot of renewables, which all of our customers are looking for, but we need to make sure that we can operate the system reliably," CEO Robert Blue told analysts during a conference call on Thursday.
Wells Fargo analysts told the media that renewables will play a significant role in meeting demand, but their limitations make natural gas appear more attractive at least until 2030.
For instance, many renewable projects will be installed in areas not adjacent to data centers, and building transmission lines takes time. Additionally, current battery technology for renewables is not efficient enough to power data centers 24 hours a day.
The surging electricity demand could help natural gas prices recover from their slump.
Due to robust production, a warm winter leading to decreased demand, and U.S. storage levels at record highs, U.S. natural gas prices plummeted more than 30% in the first quarter of 2024.
Wells Fargo predicts that by 2030, the average U.S. natural gas price could be $3.50 per thousand cubic feet, up 46% from 2024.
