The pace of announcements for planned data centers accelerated in 2024
and has continued to gather steam in 2025, with natural gas-fired power
plants emerging as a frequent choice, along with nuclear power, to
provide the around-the-clock electricity that large-scale data centers
want and need. In today’s RBN blog, the first in a series, we’ll detail
plans by several well-known energy firms to construct new gas-fired
plants that would produce electricity specifically for data centers.
Let’s start with some data-center basics. As we discussed in Storm Front,
a data center (see photo below) is the home for hundreds or even
thousands of networked computers that process, store and share data.
Data centers — many of them owned and operated by tech giants — are
among the most energy-intensive building types, consuming up to 50 times the
energy per square foot of a typical commercial office building, with
electrical demand at larger facilities ranging from 100 megawatts (MW)
to 2,000 MW. (For perspective, as we noted in Just Can’t Get Enough,
a city the size of Lubbock, TX, — population 267,000 — only requires
about 700 MW.) Demand for data centers has grown exponentially with the
expansion of artificial intelligence (AI) tools like ChatGPT and
Perplexity, which require far more computational power — and energy —
than conventional Google searches.
The Interior of an Amazon Data Center. Source: Amazon
Why Natural Gas?
As we noted in Dive In,
the main reason firms are considering natural gas to power their data
centers is that it is a consistent source of round-the-clock power and
can be deployed at scale, usually within a reasonable period of time.
Recent headlines for power deals indicate that tech firms are willing to
pay up for power — as long as it is reliable — so while gas generation
is relatively cheap, that’s more of an added benefit rather than the key
feature.
Importantly, gas-fired generation generally can be deployed
relatively quickly, allowing for solutions that are quick and nimble. A
case in point is a data center in Memphis, TN, where 14 mobile gas-fired
generators were brought in to help power a 150-MW facility being
developed by Elon Musk’s xAI. (We’ll discuss this development and mobile
generators in more detail in Part 2.) In contrast, while the buzz
around nuclear is surging due to its reliability and the fact that it
doesn’t produce GHGs, it is more expensive to build and has higher
hurdles to clear than gas, with years of permitting headaches and
construction in the best of circumstances (see We’ll Be Together).
One big catch with gas-fired power is that it generates GHGs and many
big-tech companies have set ambitious goals for reducing emissions. But
as you’ll see below, some firms are addressing this by incorporating
carbon capture and sequestration (CCS) into their data center plans.
(Note: Developing CCS projects comes with its own set of challenges —
see California Sunset, Stuck in the Middle With You and The Longest Time for more.)
Gas Demand for Data Center Power
So, what does the surge in data centers mean for natural gas demand?
Let’s start with a facility requiring 1,000 MW, or 24,000 MWh over 24
hours. Although estimates vary, by our calculations, a combined-cycle
plant would need about 6.5 MMcf of natural gas per hour, or around 157
MMcf/d, to generate that much power. The calculation can vary based on
several factors, but in short, we consider the information we know.
(*Our calculation is at the end of the blog, if you’re interested.)
It’s worth noting again that these numbers vary based on numerous
factors, including the age of the gas plant and its heat rate and
cooling factors. Data centers require significant cooling, which can
also use up more energy. (There’s also the need to get natural gas to
the site, which could require a new pipeline or a lateral from an
existing pipeline.) And that’s just for one data center. An S&P
Global report in October 2024 predicted that by 2030, data center demand
for power will increase U.S. gas needs between 3 Bcf/d and 6 Bcf/d —
even with wind, solar and other power sources meeting sizable portions
of data center power demand. To put that figure in context, dry natural gas
production in the Lower 48 has been averaging about 106 Bcf/d in recent
weeks, with net imports from Canada at 5 Bcf/d, putting total supplies
at around 111 Bcf/d. For comparison, feedgas demand for the U.S. LNG
export facilities already in operation is around 15 Bcf/d. (For more,
see our daily NATGAS Billboard report.)
The rate of growth for data center power demand is hard to predict,
but we can get a good indication from a 2024 Electric Power Research
Institute (EPRI) report we addressed in Smarter Than You.
The report represents four projections for data center demand. Figure 1
below highlights two of these scenarios, excluding the lower and higher
extreme cases. These forecasts are based on historical trends,
estimates of internet traffic, storage demand, and expectations for
computational intensity and the prevalence of AI models. The blue line
represents the average historical electricity consumption of data
centers over the 2020-23 period.
Figure 1. EPRI Projections of Data Center Power Consumption. Sources: EPRI, RBN
In the Moderate growth scenario (orange line) with a 5% compound
annual growth rate (CAGR), data center electricity demand is expected to
reach a midrange value of 214 TWh/year (terawatt-hours) in 2030. If all
that additional load were to be served by gas generation, it would be
roughly equivalent to 4.2 Bcf/d (right axis in Figure 1). For the High
growth scenario (green line) with a 10% CAGR, the midrange 2030 demand
is projected to be about 296 TWh/year (5.9 Bcf/d) — essentially double
the 2023 figure of 150 TWh/year (3 Bcf/d). Forecasts vary widely for
what the net impact on natural gas demand will be when considering other
initiatives to increase efficiency or phase out gas usage in certain
applications. But, in just about any scenario, for data centers and
other electrification initiatives, we’ll be requiring a substantial
power-grid expansion.
We should also note that forecasts for data center power demand —
already a moving target — were complicated in January by the
introduction of DeepSeek’s R1 Model, which takes a different approach
and is reportedly able to perform complicated tasks with less reliance
on high-tech chips — and ultimately require less power. That’s an
indication that power demand growth for data centers might not be as
robust as originally predicted. We expect the technical advances will
continue and the industry will be eager to figure out how to complete
more AI tasks with fewer resources. On the other hand, increased
efficiency could actually lead to more demand for power as it reduces
the cost — a concept known as Jevon’s Paradox. So, it’s possible that more energy-efficient models could lead to greater use of AI and increased data center power demand.
For now, we’ll focus on a few of the major energy firms that intend
to provide gas directly to data centers for power generation. As you’ll
see below, some of the companies haven’t revealed partners yet, and we
should also note that project announcements are coming quickly, so not
every significant announcement is listed here. (We’ll dive into the
deals that directly involve giant tech firms like Amazon, Google and
Meta in Part 2 of this series.)
Diamondback Energy
Diamondback Energy, a giant in the Permian Basin, is in talks to form
a power joint venture to sell electricity to AI data centers in West
Texas, the company announced in its fourth-quarter earnings call on
February 25. There are few details on this plan, but Diamondback, the
largest independent oil producer in the Permian Basin, said it intends
to look for an equity stake in a behind-the-meter, gas-fired powered
plant that would be built on some of its 65,000 acres (red-shaded areas
in Figure 2 below) in West Texas.
Figure 2. Diamondback Energy’s Surface Acreage in West Texas. Source: Diamondback
A co-located power plant is one placed at or near a data center,
allowing the facility to have direct, behind-the-meter connections to
the power being generated. That means the power won’t flow through the
existing transmission grid. The shale producer could benefit by
supplying some of its natural gas to the plant and receiving some of
that power for its own operations, executives said on the conference
call. Diamondback could also provide water for data center cooling. This
could be an ideal solution for producers who are seeking to get stable
pricing/offtake for their natural gas. As we’ve blogged about many
times, power transmission lines can be every bit as difficult to permit
and build as pipelines (see Don’t Pass Me By).
And while new gas pipelines are being added at a rapid clip, spot deals
at Waha frequently go to negative pricing when marginal gas production
gets stranded in the Permian Basin (see Prognostication #2).
