Welcome to Gas Land - How Natural Gas is Powering the US AI Boom

May 01, 2025 By Zachary Skidmore 

The rapid expansion of artificial intelligence (AI) is fueling an unprecedented surge in energy requirements across the US data center market. According to Berkeley Labs, electricity demand from the sector could increase by between 74-132GW by 2029, potentially accounting for up to 12 percent of total US consumption.

While the industry has long been a leader in sustainable energy procurement, the absence of a commercially viable low-carbon baseload source in the face of such exponential growth is reshaping discussions on power procurement. Therefore, as AI data centers expand in size and number, the need for reliable, dispatchable power is increasing, placing natural gas at the forefront as the only scalable and immediately available option to meet demand.

AI's insatiable appetite

AI installations have an enormous appetite for power, largely due to their reliance on large numbers of GPUs that can consume up to 33 times more energy per task than traditional CPUs. They also generate significantly more heat, driving the need for powerful cooling systems, which can account for nearly 40 percent of a data center’s total energy use.

Training advanced AI models is even more energy-intensive, often running continuously for days or weeks. Training ChatGPT-4, for instance, reportedly consumed 50GWh - more than 50 times its predecessor. Despite efficiency improvements recently demonstrated by DeepSeek - a Chinese AI model promising similar performance to US models with lower energy consumption and fewer high-end chips - experts have urged caution.

Benjamin Lee, a University of Pennsylvania professor, notes that DeepSeek's efficiency applies only to a narrow class of AI computations. While it could impact the number of gigawatt-scale centers, he said, demand for inference would likely rise, necessitating continued data center build-out. In addition, there are investigations ongoing as to whether DeepSeek used OpenAI’s models to help train its model, casting further doubt on its energy-saving claims.

Indeed, the data center and power sectors have remained bullish on their projections. AI is still expected to dominate new data center capacity going forward, accounting for 70 percent of total demand by 2030, according to McKinsey. This puts increasing pressure on the energy supply side to meet this demand.

A recent report from think tank Rand warned that if the US wishes to retain at least a 75 percent majority of worldwide AI computing, it would require almost 51GW to be available to data centers by 2027. Therefore, natural gas has emerged as the only viable and rapidly deployable power source capable of meeting the soaring energy demands of AI-driven data centers.

The natural solution

Natural gas is uniquely suited to meet the immediate needs of data centers. It is the most dispatchable fuel source available, able to be switched off and on easily, can run at capacity factors exceeding 80 percent, and can be ramped up within minutes to meet demand. The US is also uniquely positioned to meet the demand as the largest net producer of dry natural gas, supported by a vast pipeline network spanning more than three million miles.

Therefore, many analysts believe that, to meet the staggering pipeline of new data centers, natural gas is the only real option. "In the short term, natural gas is the way to go. Many utilities consider it the most viable option for balancing the growing loads while ensuring reliability," said Karthik Subramanian, an analyst at Lux Research.

Consequently, utilities facing massive data center pipeline capacity increases are turning to the natural gas sector to meet forecasted demand. For example, utilities serving the Carolina, Georgia, and Virginia markets have announced plans to add 20GW of new natural gas generation capacity by 2040, with two-thirds of forecasted load growth tied to new data center capacity.

This massive surge in data center pipeline capacity has fundamentally changed the conversation around power sourcing, according to Jamie Smith, COO at power company RPower. “It’s no longer just about prioritizing renewable energy; instead, it’s become a matter of simply obtaining reliable power," he explains. "Natural gas has emerged as a crucial solution, providing a stable and scalable source of electricity that meets the immediate needs of data centers."

The election of Donald Trump, who has already pledged to fast-track new natural gas generation, and utilities' moves to shore up and expand their natural gas generation capacity are giving natural gas companies an increasingly free hand to expand their production and supply infrastructure. This bodes well, particularly for midstream gas companies - responsible for transporting, storing, and processing natural gas - which are targeting massive growth across their pipeline network driven by data center demand.

Pipeline buildout

Midstream gas companies are anticipating a significant uptick in demand from the data center sector, with some predicting this to be as high as "10 to 12 billion cubic feet per day (bcf/d) by 2030," according to Michael Grande, managing director of midstream energy and refining at analyst firm S&P Global. Although actual demand may fall short of those upper estimates - S&P forecasts a more modest growth range of three to six bcf/d - midstream companies have already made large capital commitments to pipeline extensions across the country.

Cathy Kunkel, an energy consultant at the Institute for Energy Economics and Financial Analysis (IEEFA), believes that midstream companies are sensing a real "opportunity with data centers" and are actively looking to "supply pipelines to new natural gas plants" to directly serve the data center market.

Midstream firms such as Enbridge have openly recognized the opportunity presented by data centers. According to Caitlin Tessin, vice president of market innovation and Gulf Coast business development at Enbridge, the company has "seen interest from data center providers in multiple regions.” In the southeast alone, the company said it has had interest in serving up to 4.5GW to 5GW of demand.

In Virginia, North Carolina, South Carolina, and Georgia alone, pipeline operators have proposed or begun construction on more than 3.3 bcf/d of new pipeline capacity by 2040, according to the IEEFA.

Midstream flexibility

While the majority of the new pipelines are expected to supply utilities, midstream companies are approaching demand with an open mind and have stressed adaptability and flexibility in how they will supply the data center sector. According to Tessin, the lack of a one-size-fits-all approach to powering data centers means that operators are looking at off-grid and grid-based solutions.

"Some developers are working on behind-the-meter generation directly served by natural gas, so we are actively siting lateral projects off our mainline to support them. Others want to remain connected to the grid and are working with electric distribution companies to site new power plants that would then serve them," she explains.

This has led to an increase in midstream pipeline operators building laterals off their main pipeline to directly serve data centers, such as AI data center developer CloudBurst's ten-year natural gas supply deal with midstream gas firm Energy Transfer to power its 1.2GW Texas AI data center via a dedicated lateral.

According to S&P Global’s Grande, these laterals are not only "practical," but also "avoid permitting issues and public opposition while offering direct power access." As a result, data center companies, especially AI-focused firms, facing persistent permitting challenges and transmission constraints, are looking towards off-grid natural gas generation as their quickest solution.

Offgrid options for data centers

The rise of natural gas as an offgrid power solution is beginning to reshape power procurement, fostering collaboration between gas producers and data centers.

Increasingly, data center operators are colocating with upstream gas producers, particularly in states with strong infrastructure, lower costs, and favorable permitting, such as Texas, the Midwest, Colorado, Utah, New Mexico, and Louisiana. Texas, in particular, is emerging as a leading off-grid AI hub due to its size, tax advantages, and status as the top US gas producer.

Several data center firms have signed agreements with gas providers at the source to secure direct, off-grid power in Texas. A notable example is Texas Critical Data Centers, a joint venture between New Era Helium and AI cloud firm Sharon AI. The JV plans to build a 250MW AI data center adjacent to a gas production facility in the Permian Basin.

"Natural gas [has become] the industry standard for large-scale data centers"

Darrick Horton, TensorWave

According to Will Gray, CEO of New Era Helium, areas such as the Permian Basin offer a unique opportunity for AI and cloud data centers, as it “offers cheap power and ample infrastructure for scalability, making it ideal for such projects." Therefore, for data centers looking to scale rapidly, off-grid natural gas offers clear advantages, namely, lower costs, streamlined permitting, and a stable, long-term energy supply. This has led smaller-scale AI-focused developers to increasingly view off-grid natural gas as the industry standard to power their operations, as it is one of the few energy sources that can quickly scale to gigawatt levels, according to Darrick Horton, CEO of AMD-based cloud provider TensorWave.

While much of the new AI data center capacity will remain in hotspots such as Virginia, the attraction of off-grid natural gas supply is pushing “operators to opt for locations further out, where they have the flexibility to build out their own power solutions,” points out David Dorman, director of development at Duos Technologies, which develops power infrastructure through its Duos Energy subsidiary.

The shift to off-grid solutions has not only been limited to plucky AI start-ups. Large-scale players are embracing natural gas for its reliability and scalability. For example, the first Stargate data center in Abilene, Texas, is reportedly set to use an off-grid natural gas power plant for its power – as well as renewable assets. The surging demand has also attracted major oil and gas companies. ExxonMobil and Chevron have announced plans to develop dispatchable off-grid natural gas power plants for data centers.

As a result, while utilities remain integral to AI's growth, an increasing range of options is being made available to data centers to power their operations behind the meter, entrenching natural gas as a central power source for data centers wishing to meet their AI ambitions.

Risky business

The rise of AI is changing the way the market views power procurement. However, two inherent fears continue to permeate the market: the risk of overbuilding new gas-fired generation and the subsequent impact this new power could have on data centers' sustainability credentials.

Fears of overbuilding new gas generation have been primarily fueled by a growing discrepancy between utility capacity growth projections and those of independent researchers. Dominion Energy, for instance, projects data center growth seven percent higher than the Electric Power Research Institute’s (EPRI) upper forecast.

According to Jeremy Fisher, principal advisor for climate and energy at environmental pressure group Sierra Club, the impact of overbuilding new gas-fired generation capacity may result in "a huge amount of stranded asset risk being passed over to American ratepayers, as utilities build gas infrastructure for speculative data center demand that may not materialize."

Several utilities, including American Electric Power Ohio, have introduced tariffs that will require new data center customers to pay for the majority of the energy they say they need each month to cover the cost of infrastructure. However, IEEFA’s Kunkel has argued more needs to be done to ensure that the bill does not fall on the ratepayer. “If the customer is gone, other ratepayers pick up the tab unless regulators step in now and put more safeguards to push some of the risk back onto the data center developers," she says.

In addition, the uncertainties around forecast discrepancies and growth of data centers actively colocating with natural gas facilities have led people like Fisher to argue that the increasing alignment “risks tying the sector’s growth directly to fossil fuel infrastructure."

While proponents claim that natural gas is the cleanest fossil fuel alternative, emitting 50 percent less CO2 than coal, the growth of capacity associated with the AI boom risks massive emission increases. Estimates from Goldman Sachs have suggested a potential increase of 200 million tons of carbon dioxide emissions per year by 2030. These fears are exacerbated by the fact that data center operators have already reported huge increases in carbon emissions over the past five years. Last year, Google reported that its 2023 emissions rose 13 percent compared with the previous year and 48 percent over five years.

Despite the overt concerns over the impact natural gas buildout could have on carbon emissions, Michael Grande believes it is becoming almost an open secret within the sector that “tech companies with zero-emission goals may still turn to gas for quick power, despite the contradiction with their public commitments.”

Therefore, to assuage concerns, data centers, and utilities are increasingly promoting natural gas as a “bridging fuel” that can support the transition to low-carbon baseload alternatives. However, the nature of these alternatives remains up for debate.

What's the alternative?

Natural gas has been touted as a bridge fuel for years now, with many in the data center center expressing optimism about its bridging credentials. "Natural gas can serve as a reliable and scalable fuel source that can bridge the gap between traditional power systems and future low-carbon technologies," Raj Chudgar, chief power officer at data center operator EdgeConneX. Earlier this year, EdgeConneX announced plans to develop a 120MW natural gas plant in Ohio to power a data center campus. The plant will be the primary power source for the data center, serving its energy needs behind-the-meter.

Several low-carbon technologies offer a potential solution to the base load question. Small Modular Reactors (SMRs) are one promising option, offering reliable baseload power at scales of 80- 300MW. Data centers have been widely committed to technology over the last year, with AWS, Google, and Oracle all signing long-term supply agreements.

One of the novel agreements was between gas generation firm RPower and SMR developer Oklo. The two companies announced a partnership that could serve as a powerful test case for using natural gas as a bridge fuel to SMRs, deploying a phased power model. Natural gas would be installed to meet data centers' immediate power needs, but it would be slowly phased out and replaced by SMRs as they become commercially available.

"By constructing natural gas-fired power plants now, data centers can access affordable, reliable energy," and "once nuclear power becomes available, these gas plants can still play a role by providing backup capacity, load following, supporting peak demand, and ensuring grid stability," says RPower’s Jamie Smith.

However, despite increasing interest in SMRs, they remain unproven. Although Oklo states that it aims to deploy its first SMR in 2027, the company has faced skepticism following the Nuclear Regulatory Commission's denial of its application to build and operate a reactor in 2022. As a result, the timeframe of the deal remains shaky, with Smith admitting that the transition could last "anywhere from three years to over a decade."

For others, hydrogen is seen as a potential answer. This is particularly popular amongst natural gas producers. "Hydrogen is another potential future solution. Most modern gas generation equipment can already consume a blend of hydrogen and natural gas, and in some cases, even operate on 100 percent hydrogen with modifications," says Dorman.

However, despite increasing interest, green hydrogen production remains nascent, making it an impractical short-term substitute.

While emerging low-carbon technologies, such as hydrogen and SMRs, might offer significant potential, they also face notable barriers and are unlikely to make a noticeable impact before the decade's end.

In turn, as AI data centers become more intertwined with natural gas infrastructure, the drive to transition to cleaner energy may weaken. In the near term, natural gas will be the primary power source fueling new data center growth across the US - emissions targets be damned.

Source: 

Skidmore, Zachary. “Welcome to Gas Land - How Natural Gas Is Powering the US Ai Boom.” Welcome to Gas Land - How Natural Gas Is Powering the US AI Boom, 1 May 2025, www.datacenterdynamics.com/en/analysis/welcome-to-gas-land-how-natural-gas-is-powering-the-us-ai-boom/.