Gas demand in U.S. power and LNG sectors set for concurrent growth

Companies in the U.S. oil and gas midstream sector are anticipating a significant uptick in natural gas demand from AI-powered data centres and LNG facilities over the next few years, according to the latest round of Q2 results. The country’s largest producers, shown above using Evaluate Energy data, have a keen eye on developments.

The EIA’s most recent Annual Energy Outlook from 2023 projected a decline in natural gas demand through 2030 in its reference scenario.

But the sector’s demand profile is changing rapidly. Kinder Morgan believes that there will be a growth in U.S. natural gas demand “well in excess” of 20 bcf/d between now and 2030.

“We’re having commercial discussions on over 5 bcf/d of opportunities related to power demand, and that includes 1.6 bcf/d of data centre demand,” said CEO Kimberly Allen Dang on the firm’s Q2 results.

Annual electricity demand growth over the last 20 years has averaged around 0.5%. In the last two months, experts have predicted it will increase to a 2.6% to 4.7% range, according to Dang.

Part of the reason for this sudden surge in power sector gas demand is that many data centre developers, who initially targeted renewable power, are now turning to gas-fired generation as a more reliable option.

“Many developers of data centres would prefer to rely on renewables for their power, but achieving the needed 24-7 reliability by relying only on renewables is almost impossible. And growth in usage is limited by the need for new electric transmission lines,” said Dang.

“Two things are key from their perspective. One is reliability and two is speed to market.”

Meanwhile, midstream firm Enbridge has seen interest from power sector firms in the southeastern U.S. in securing approximately 0.7 bcf/day of gas.

“Some of that will be coal to gas changing, but a lot of its data centre driven,” said Enbridge CEO Gregory Ebel.

Midstream firm Williams said it is also expecting a growth in power sector gas demand, particularly in the southeast and Mid-Atlantic states.

“We frankly are kind of overwhelmed with the number of requests that we’re dealing with,” says Williams CEO Alan Armstrong.

LNG

This relatively new and unexpected growth in power sector gas demand is expected to coincide with an increase in LNG demand for North American exports.

Midstream firm TC Energy expects both power sector gas demand and the next wave of LNG to add around 5 bcf/d each to its demand profile in the near term, based on projects under development. The firm is delivering around 30% of U.S. LNG feedgas.

“Never have I seen such strong prospects for North American natural gas demand growth,” said CEO François Poirier on the firm’s Q2 results.

U.S. LNG projects expected to start commissioning work in 2024 include Venture Global’s Plaquemines LNG terminal in Louisiana and Cheniere’s expansion of its Corpus Christi LNG plant in Texas. The QatarEnergy and ExxonMobil-backed Golden Pass LNG export facility in Texas has delayed commissioning to late 2025.

The EIA forecasts that LNG exports will increase 2% in 2024 to average 12.2 bcf/d, and 18% in 2025 to reach 14.3 bcf/d, creating increased demand for feedgas.

This demand will increase in the second half of the decade as more export projects come online. As power sector demand grows concurrently, low-cost production resources may be exhausted more rapidly than anticipated, potentially driving up Henry Hub prices.

The forward curve for Henry Hub gas futures, published by CME, suggests that prices could reach $4/mmbtu by 2027.

This could lead to a potential dilemma for U.S. upstream and midstream producers over whether to position their infrastructure buildouts towards domestic power sector demand or LNG exports.

The dilemma is intensified by the “overwhelming” number of requests midstream firms like Williams are seeing for data centre connections, and compounded by ongoing permitting issues, highlighted by industry body the Interstate Natural Gas Association of America (INGAA).

As the largest U.S. natural gas producer among public companies in Q2, EQT has more than a vested interest in these demand projections.

CFO Jeremy Knop said the firm sees data centres as more reliable sources of gas demand than LNG projects due to the price volatility of global LNG markets.

“That sort of stability is something that we really try to focus on in our business as we build it for the long-term,” Knop said during the firm’s Q1 earnings call.