Gas-Fired Power Braces for New AI Landscape
By Richard Nemec, Contributing Editor, North America
(P&GJ) – This summer of 2025, sources as different as the international consulting firm Wood Mackenzie (WoodMac) and the National Association of Manufacturers (NAM) weighed in on natural gas’ role in the debate about artificial intelligence, and its need for exponential growth in power supplies.
WoodMac has several new reports on the subject, and NAM in July was urging its members to spread the word from the U.S. Department of Energy (DOE) that America is in danger of losing the race for AI leadership unless it greatly accelerates the development of new baseload power generation, in part to support data centers.
Meanwhile, on a quarterly earnings call, the CEO for San Diego-based utility holding and gas infrastructure company Sempra Energy told analysts that his company’s major multibillion-dollar utilities in California and Texas are well along in preparing to meet future demand spikes.
Sempra’s CEO Jeffrey Martin has emphasized to Wall Street that more than $10 billion of Sempra’s $13 billion capital expansion budget for 2025 is concentrated on its utilities that include the major power transmission outlets in Texas and major gas and power infrastructure in Southern California.
Sempra’s Oncor electric transmission company in Texas is literally arming the U.S. fossil fuel center with greatly increased power supplies in the Permian Basin and other energy centers in the state. Oncor is developing new 765-kV transmission lines for both the west and eastern markets of Texas.
Martin assured analysts on a first quarter earnings conference call that Sempra is not going to be adversely impacted by any new trade tariffs coming from the Trump administration as both its utilities and its liquefied natural gas (LNG) operations have taken steps to increase its reliance on domestic materials.
“Even where we have some exposure, it is estimated to be within 1%-3% of capital expenditures,” Martin noted on the May conference call. “As we have looked at this back in March, April and May, we feel we are in really good shape relative to tariffs.”
In June, WoodMac analysts noted they were tracking 134 GW of proposed data centers across the United States, up from 50 GW a year earlier. They called U.S. data center demand “booming” with vertically integrated regulated utilities “being advantaged” compared to deregulated markets in getting large loads connected to the grid, according to a Horizons report from the consulting firm.
According to the report, “U.S. Power Struggle: How data center demand is challenging the electricity market model,” WoodMac now tracks the ongoing development of a 12% increase in U.S. electricity demand.
“Substantial hurdles make meeting this demand growth challenging,” said Chris Seiple, WoodMac’s vice chairman for energy transition and power/renewables. “There are bottlenecks for critical pieces of equipment needed to enable new supply, substantial amounts of coal-fired generation is set to retire, and new projects have long lead times due to bottlenecked interconnection queues, the need for transmission upgrades and permitting challenges.”
Industry sources privately will say the estimates for future power and AI’s influence are somewhat “moving targets.” However, they cite recent studies by Goldman Sachs that points to a 165% increase in data center power demand by 2030.”
It is worth noting there are still disadvantages to keep in mind. Utilities may not offer the clean energy solutions often desired. Not all utilities are innovative, and they may not offer the same commercial flexibility a large load can achieve in a deregulated market where it has choices.
“Most important, existing utility customers could potentially be at risk of paying for the investments meant to meet these new loads if the new demand does not materialize as forecast,” according to a WoodMac media release.
Other sources also indicated to P&GJ that the Washington, D.C.-based Interstate Natural Gas Association of America (INGAA) Foundation is updating its latest infrastructure report to examine what future pipeline infrastructure build-outs will be needed to meet the AI/data center energy demand surge expected in the years ahead. Those findings are expected to be available in fourth quarter of 2025 or first quarter of 2026, sources said.
“Estimates indicate that an additional 3 bcf/d-10 bcf/d of natural gas transportation capacity will be needed by 2030, driven by the rise in AI and data centers,” said INGAA CEO Amy Andryszak. “Satisfying this escalating demand will only be possible if we continue to build out our energy delivery system, including natural gas pipelines and related infrastructure, to move energy from where it is produced to where it is consumed.
“Our members are working to help fill this gap for additional energy infrastructure and have reported a record number of proactive inquiries for new pipelines from potential customers in recent months. A number of members are already announcing new or revived pipeline projects, and we expect more will file for certificates at the Federal Energy Regulatory Commission [FERC] over the next 18 months.”
Other WoodMac work on the issues at hand include another report dealing with “Turbocharged vs. Turbo Lag: The new landscape for gas-fired power,” projects that equate to about 890 GW of new gas-fired generation capacity that will be added globally between 2025 to 2040. Combined, China and the United States average 47% of global annual additions from 2025 to 2040.
Other markets and regions, including Southeast Asia, India, and the European Union-27, represent 53% of global annual additions from competition from renewables, according to WoodMac’s report.
Manufacturing capacity constraints could delay new gas plant construction. WoodMac calculates about 90% utilization of gas turbine manufacturing capacity in 2025, which could cause some U.S. developers to find that 2030 or beyond is the earliest opportunity to bring new combined cycle capacity online.
In its recent series of analyses, WoodMac also commented on Congress’ passage of the Trump administration policy agenda, dubbed “One Big Beautiful Bill,” noting that the energy industry, particularly the power generation sector, is going to be “fundamentally reshaped,” according to the firm’s analysts. They noted in July that the nation’s policies on power need to adapt if the U.S. is to avoid losing its competitive edge on AI.
“Congress’ comprehensive legislation introduces new restrictions for renewable power investments, establishes clear emerging technology winners, and makes upstream oil and gas a major priority, introducing significant policy uncertainty that could impact long-term investment decisions in assets with 30-year-plus lifespans,” WoodMac notes.
“With such dramatic uncertainty facing new power supply investments, thermal retirements are likely to be deferred, power prices will rise and large loads will be delayed,” said David Brown, WoodMac director, energy transition research. “Without permitting reform, new large load tariffs, and domestic technology innovation, the U.S. will risk losing the edge it has in the global AI race.
An extension of President Trump’s narrowly passed and heavily lobbied major policy and tax cut bill kicked off softening of climate change regulation by the U.S. Environmental Protection Agency (EPA) in July by eventually rescinding its so-called “endangerment finding,” which drew widespread praise in the energy industry, particularly for the Marcellus Shale Coalition (MSC) President Jim Welty, who thinks this regulatory relief will help allow natural gas to keep lowering greenhouse gas (GHG) emissions with less roadblocks from the federal government.
Welty called the EPA rules “burdensome” and praised Trump’s “bold action to prioritize common sense policies that help both the environment and the economy.”
As a holdover from past decades, the perceived role of natural gas as the nation’s “bridge fuel” is again a lively topic. Brown expects gas’s role to expand over the next five years, particularly in the United States. This is particularly true in the context of the role that existing U.S. gas infrastructure can play and the time horizons for project investments.
“Now through 2035, we do think natural gas has a larger role to play to help supply power markets that are becoming more intermittent,” Brown said. “The U.S. supply chain for natural gas continues to be particularly strong and able to meet projects to meet demand.”
The capacity markets are emerging in the United States and are already critical to natural gas development in Europe and Asia, he said.
“Everyone acknowledges the need for natural gas, but the investment needs aren’t fully backed, so one option that may develop is stronger policy incentives for capacity investments,” Brown said. “You started to see that trend even before AI became a hot topic.”
He cited the example of Texas setting incentives for capacity investments, adding
that if natural gas is to have a longer-term role in the energy sector – a longer bridge, if you will – then technology advances in carbon capture/storage and hydrogen have to be factored in.
On other issues, P&GJ caught up with Brown in July to get his further insights into the power issues and the impact on the natural gas sector, particularly transmission pipeline networks. He envisions a larger role for natural gas in the North American energy space, but questions rhetorically whether the industry will be up to the challenges that go along with the potentially wider sphere of influence.
“I think it [the industry] certainly understands its involvement, but the picture is a bit mixed as to whether the industry is ready [for a spike in demand],” Brown explained in a phone interview. “There are some significant changes facing the gas turbine industry, for example. So, we think there are some real limits on how much new gas-fired generation capacity actually gets added, particularly in the United States, but also in other markets because gas is a very expensive resource.”
Manufacturing capacity constraints could delay new gas plant construction, according to WoodMac It has calculated that there will be about 90% utilization of gas turbine manufacturing capacity in 2025, which could cause some U.S. developers to find that 2030 or beyond is the earliest opportunity to bring new combined cycle capacity online.
These factors were cited:
• U.S. skyrocketing capital costs and power market prices are below the cost of new gas generation.
• In Asia, high imported gas costs limit gas to a peaking role despite strong power demand growth.
• In Europe, decarbonization goals are pushing unabated gas to the margins by 2040.
Brown notes that bottlenecks to new gas-fired generation in the PJM grid is just one part of the energy value chain, so far gas has a lot more momentum and increased activity is needed, such as more use of existing assets and the existing gas grid. Thus, if there is a slew of new natural gas infrastructure projects coming online across the country, that should add some tailwind to the vision of an expanding use of natural gas in the power sector, Brown concluded.
He thinks a lot of risk was interjected in U.S. decarbonization by the “One Big Beautiful Bill,” meaning the pathway to lower carbon will depend much more on the economics of the unsubsidized costs where there are state policies and corporate zero targets.
“Decarbonization will continue to be a large priority within Europe, although it has slowed down over the last few years with the Ukraine War and other issues, but they are moving to a price on carbon, and that is the way the U.S. is moving only more slowly,” Brown said.
“The whole mix has changed in the United States in only a few weeks in June this year,” Brown thinks. “We still expect the EU to go ahead with its broad agenda.”
And he added this could be a big boost for LNG exports to Europe and for U.S. exporting decarbonization technologies.
“That picture is still evolving, and the U.S. gas industry is watching that very carefully,” he said.
WoodMac analyses support the prediction for a boom in data centers. But they see the need for a lot of innovation in that area, and that will take some time, too. Their analysts are interested in the incentives that will be provided in future commercial arrangements.
“There need to be ways to incentivize these investments and make them work [in the realm of huge power purchases] for both power providers and the data centers,” Brown notes.
Major U.S. oil and gas basins are concerned about this conundrum, and none more so than the Bakkan Shale play in North Dakota where the gas-to-oil ratio is growing with associated gas supplies equaling 3,000 cf for every barrel of oil produced, or a 3-to-1 gas-to-oil ratio
Justin Kringstad, director of North Dakota’s Pipeline Authority told P&GJ that the trend is for the amount of gas production relative to oil to continue to move upward. Kringstad said it was above three for the first time in June. Gas capture was at 95.7% statewide when Kringstad was interviewed.
“It is very good to see the numbers; three months in a row we have had great news on capture,” Kringstad said. “It is very encouraging to see the capture where it is and the volumes down where they are.” This is happening during what Kringstad called “near-record levels of production.” And he added that the mid-stream is keeping on pace with the gas capture numbers at the wellhead.
On the state’s major transmission pipeline, Northern Border, about 83% of the supplies are from the Bakkan, but the trend is for ever-increasing portions of Canadian supplies, Kringstad said. The same for ethane supplies, a slight uptick that crowds out natural gas.
BTU levels, or heating values, were increasing in June, according to Kringstad, meaning producers want to shove more ethane into the mix for sorting out from natural gas further down the pipeline closer to the major markets to the east in Minnesota, Wisconsin and Illinois.
“The more ethane that is injected into the natural gas pipeline, the less space there is for natural gas,” Kringstad told the news media, adding that if more capacity for gas is constrained in future years, it could cause limits of the Bakkan supplies getting marketed with the expected increase in gas demand for power generation and data centers.
WBI Energy Transmission, a unit of Bismarck, N.D.-based MDU Resources Group, and Tulsa-based Intensity Infrastructure Partners have proposed eastern pipeline expansion projects for Bakkan gas supplies in the works to come online by 2030.The state Industrial Commission, which is chaired by the governor, is reviewing these plans this year.
WBI’s Bakkan East Pipeline is a massive project calling for 125 miles of 36-inch and 225 miles of 30-inch pipeline with a total capacity of 2.9 Bcf/d and planning for up to 14 third-party pipeline connections. Similarly, Intensity calls for 136 miles of 36-inch and 208 miles of 30-inch pipelines, moving up to 1.1 Bcf/d with the ability to expand it up to 1.5 Bcf/d. WBI has its own storage to rely on, and Intensity would have to contract with WBI for its storage.
Richard Nemec is a long-time contributing editor who can be reached at rnemec@ca.rr.com.