Artificial intelligence (AI) and digitalization are driving an unprecedented surge in electricity demand, led by hyperscale data centers. These massive facilities, the backbone of the digital economy, are expanding rapidly, creating significant challenges for power markets and increasing reliance on natural gas for reliable energy.
Data processing and storage needs are skyrocketing. U.S. electricity demand is expected to reach record highs, with data centers playing a significant role in this trend. Their electricity consumption is projected to increase by 10% annually through 2030.
Hyperscale data center construction is also booming, with 120 to 130 new facilities expected to be built annually over the next decade. Though they represent less than 10% of all data centers, these facilities control over 40% of global capacity, significantly straining energy infrastructure.
Most data centers rely primarily on electricity sourced from the traditional power grid. In the U.S., natural gas is the dominant source of electricity. As data center demand grows, reliance on natural gas-fired power plants is expected to increase. Renewables are expanding as energy sources, but their intermittent nature requires a dependable backup, and natural gas provides that reliability.
Power demand from U.S. data centers is projected to jump from 147 terawatt-hours (TWh) in 2023 to 606 TWh by 2030, surpassing the total power demand from electric vehicles (EVs). Natural gas-fired power plants will play a pivotal role in meeting this need.
The energy demand from data centers creates significant opportunities and challenges for investors:
- Natural gas demand: Natural gas production is expected to remain strong, driven by domestic data center needs and new LNG export projects.
- Regional electricity growth: States with high data center activity, like Texas, are expected to see significant increases in electricity demand.
- Infrastructure challenges: Limited power availability in key markets is a major constraint, creating opportunities for investments in grid and power generation.
The rise of data centers fueled by AI and digital technologies marks a new era of global energy demand. This structural shift ensures long-term demand for natural gas, highlighting opportunities for investors in natural gas production, power generation, and grid infrastructure. As digital and physical worlds converge, the energy required to support this transformation will remain a cornerstone of the global economy.
For more information on related investment opportunities and insights, please see our equity research report, “Can’t Fight This Feeling” – Approaching Energy Cyclical Bottom, Likely Inflection Point, or visit our Equity Research Rewind landing page for other topics on our website.