By Mrinalika Roy
(Reuters) – Shale gas producers in the U.S. Permian Basin are sounding out data center operators are building capacity to power a boom in AI applications, aiming to ease pressure from a nearly two-year slump in commodity prices raw material.
Devon Energy, Expand Energy, Diamondback Energy and Permian Resources have highlighted the potential of AI and data centers to drive gas demand and said they were in initial discussions with many operators.
According to estimates from S&P Global Ratings, the energy needs of U.S. data centers could boost gas demand by between 3 billion and 6 billion cubic feet per day (bcfd). The agency expects power demand in US data centers to increase 12% annually through the end of 2030.
“The expectation of a step change in energy demand has created opportunities for increasing dialogue about the potential for energy generation and data projects within the Permian Basin” of West Texas and New Mexico, James Walter, co-CEO of Permian Resources, said previously this month.
The region’s abundant and cheap gas, vast acreage, supportive regulatory environment and long-term inventory could make it an attractive proposition for data center developers.
This idea is fueled by the continued weakness in gas prices. Average monthly spot prices on the US Henry Hub benchmark fell to a 32-year low in March and have remained weak.
“Rather than continue to earn low margins on our gas, we’re trying to find a way to be creative in ways to convert some of that natural gas into greater value for our shareholders,” said Travis Stice, CEO of Diamondback Energy.
Restrictions on data center expansion in Texas due to power grid constraints could pave the way for tripartite agreements involving operators, utilities and data center developers, analysts told Reuters.
“That’s the most likely path we’ll take… I don’t think many operators are willing to invest capital in building power plants,” said Carson Kearl of energy researcher Enverus.
CARBON FOOTPRINT
Operators willing to develop some form of carbon capture and storage (CCS) around gas-fired power plants, especially in Louisiana and Texas, could gain an edge over publicly traded hyperscalers, Kearl noted.
“The combination of natural gas and carbon capture provides a winning formula that will help fuel the continued growth of AI and data center buildout,” said Eric Jacobsen, Chief Operating Officer of BKV Corp.
Many hyperscalers, including tech giants Amazon, Microsoft and Alphabet’s Google division, have pledged to achieve net-zero carbon emissions and are therefore looking to reduce the carbon footprint of their data centers.
“Our country needs some kind of Manhattan Project on natural gas to be the source of supply for the energy supply growth, the electricity demand growth that we see in AI,” John Hess, CEO of shale producer Hess Corp, said in November at Wolfe Research. Oil and Gas Conference.
(Reporting by Mrinalika Roy in Bengaluru; Editing by Sriraj Kalluvila)
