AI Boom Is Driving a Surprise Resurgence of US Gas-Fired Power

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(Bloomberg) — U.S. energy companies are planning to generate power from natural gas at the fastest pace in years, one of the clearest signs yet that the fossil fuel likely has a longer lifespan than previously thought.

From Florida to Oregon, utilities are racing to meet surging demand from AI-powered data centers, manufacturing facilities and electric vehicles. The staying power of gas, which in 2016 overtook coal as the No. 1 source of electricity in the United States, has surprised some experts who not long ago predicted that the era of frenetic growth in domestic demand for the fuel might soon be over.

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“A few years ago, there was an expectation that solar and wind would be able to meet our additional energy needs,” says Jed Dorsheimer, head of the energy and sustainability group at investment bank William Blair, who now sees gas accounting for up to 60% of new power generation. “There were calls for peak oil and gas, and eventually those calls will be true.” But not anytime soon.

A prolonged natural gas reign would have major environmental consequences, though both sides dispute which way to go. On the one hand, the abundance of cheap gas in the United States from the fracking boom has accelerated the decline of coal, with its heavy carbon footprint. Advocates of natural gas have long touted it as a “bridge fuel,” or a less carbon-intensive way to ease the transition from dirtier fossil fuels. Gas plants are also attractive to grids trying to help support the flood of intermittent wind and solar power coming online. “Natural gas is a critical partner in maintaining grid reliability and deploying more renewables,” said Dan Brouillette, president of the Edison Electric Institute, which represents investor-owned utilities.

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But gas infrastructure is also vulnerable to leaks of methane, which has a global warming effect 80 times greater than carbon dioxide in the atmosphere during its first 20 years of existence. And once new gas plants are up and running, they are likely to operate for 40 years or more. That means approving new plants today risks locking in dangerous greenhouse gas emissions for decades beyond President Joe Biden’s goal of a net-zero electricity sector by 2035.

“We were ready to transition away from the energy system of the past, and the expensive, polluting infrastructure like coal and gas plants. But now we’re going in the opposite direction,” said Kendall Coopervig, advocacy director for Clean Virginia, which promotes green energy in the state. “A lot of people are shocked.”

In the first six months of the year alone, companies announced plans to build more new gas-fired power capacity across the U.S. than they did in all of 2020, according to Sierra Club data. And if the second half is anything like the first, 2024 will see the most new gas-fired power generation since at least 2017, when the environmental group began tracking the data.

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For capacity announced in 2024 alone, Texas has the most new generation underway, according to Sierra Club data. Looking at everything in the pipeline, regardless of announcement date, the Southeast is planning the most gas additions, according to researcher Enverus. In all, there are more than 200 gas units in various stages of development across the U.S. with plans to start between now and 2032, totaling about 86 gigawatts of capacity, according to estimates by analytics firm Yes Energy. Enverus calculates it’s even higher — more than 100 gigawatts, or enough to power nearly 80 million homes.

With natural gas still the preferred fuel source for many U.S. utilities, some companies have quietly revised their decarbonization targets, undoing years of hard work planning for a less fossil-fuel-intensive future. Berkshire Hathaway Inc.’s PacifiCorp, for example, expects carbon emissions to fall 63% from 2005 to 2030, compared with a previously projected 78% decline over the same time frame, as rising demand expectations and the easing of some requirements extend the timeline for emissions reductions.

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Pacific Corp. announced plans this year to add more than five gigawatts of new natural gas generation while canceling about seven gigawatts of renewable energy projects over the next two decades, according to an analysis by Bloomberg Intelligence climate analyst Andrew John Stephenson. A spokeswoman for the Warren Buffett-owned utility said the company’s increased reliance on gas comes largely from its decision to convert some coal units to gas and that it still plans to meet carbon dioxide emissions reductions of 80% by 2035 and 100% by 2050.

“This oscillation between utilities that thought they could get rid of new gas and now they’re committed to it is concerning,” says Kara Vogler, deputy director of research at Sierra Club, of the broader energy industry. Analysts Rob Barnett and Patricio Alvarez of Bloomberg Intelligence estimate that U.S. power demand could rise as much as 30% by 2030 from today’s levels.

Of course, not every announced plant is eventually built or connected to the grid. Sierra Club says about 10 gigawatts of previously planned projects were canceled last year, compared with about 45 gigawatts that were announced. Berkeley Lab estimates that only about a third of connection requests have historically resulted in active gas plants, though that’s higher than wind (20%) or solar (13%). Some planned projects may also be canceled over concerns that their costs will inflate rising energy prices.

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Bills would rise about 10% a year if utilities added new gas generation, said Jigar Shah, director of the U.S. Department of Energy’s Office of Loan Programs. Instead of building new plants, utilities could try to meet increased demand through more cost-effective means, such as harnessing solar and home batteries or replacing power lines with more powerful ones that can carry more electricity, Shah said.

“What the Department of Energy is saying is that we have the tools to meet this moment, but we have to find a way to do things smarter, not harder,” he said.

Still, growing energy needs are hard to ignore. Electricity use by data centers is expected to rise by up to tenfold from current levels by 2030. In addition to building new plants, some power companies are retiring gas plants at a slower rate than previously expected, according to energy market analyst Patrick Finn of energy consultancy Wood Mackenzie. “That makes clean energy targets more difficult to achieve,” he said.

(Michael Bloomberg, majority owner of Bloomberg LP, the parent company of Bloomberg News, has contributed to campaigns to close coal-fired power plants and shift away from fossil fuels.)

—With assistance from Raeda Wahid and Alex Newman.

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