FILE PHOTO: A pump jack operates in the Permian Basin oil and natural gas production area near Midland, Texas U.S. August 23, 2018. REUTERS/Nick Oxford/File Photo
(Reuters) - Shale gas producers in the U.S. Permian Basin are sounding out data-center operators building up capacity to power a boom in AI applications, aiming to ease the pressure from a nearly two-year slump in the prices of the commodity.
Devon Energy, Expand Energy, Diamondback Energy, and Permian Resources have highlighted the potential for AI and data centers to drive gas demand and said they were in initial discussions with many operators.
U.S. data centers' energy needs could boost gas demand by between 3 billion and 6 billion cubic feet per day (bcfd), according to S&P Global Ratings estimates. The agency expects U.S. data center power demand to increase 12% annually until the end of 2030.
"Expectation of a step change in power demand has created opportunities for increasing dialogue around the potential for power generation and data projects within the Permian Basin" of West Texas and New Mexico, Permian Resources co-CEO James Walter said earlier this month.
The abundant and low-cost gas, vast surface area, supportive regulatory environment, and long-dated inventory, could make the region an attractive proposition for data-center developers.
Fueling this thinking is the persistent weakness in gas prices. Average spot monthly prices at the U.S. Henry Hub benchmark sank to a 32-year low in March and have remained weak.
"Rather than continuing to get low margins on our gas... we're trying to figure out a way to be creative on ways to turn some of that natural gas into more value for our shareholders," said Diamondback Energy CEO Travis Stice.
Constraints on data center expansion in Texas due to the electricity grid's limitations may pave the way for tripartite agreements involving operators, utilities, and data center developers, analysts told Reuters.
"That is the most likely path that we (will) travel down ... I don't think a lot of the operators are willing to put the capital down to build power plants," said Carson Kearl of energy researcher Enverus.
CARBON FOOTPRINT
Operators willing to develop any kind of carbon capture and storage (CCS) operation around the gas-fired power plants, specifically in Louisiana and Texas, may gain an edge with publicly traded hyperscalers, Kearl noted.
"The combination of natural gas and carbon capture provides a winning formula that will help fuel the continued growth in AI, data center build-outs," said BKV Corp Chief Operating Officer Eric Jacobsen.
Many hyperscalers, including tech giants Amazon, Microsoft, and Alphabet's Google unit have pledged to achieve net-zero carbon emissions and are thus keen to reduce their data centers' carbon footprints.
"Our country needs to have sort of a Manhattan Project on natural gas to be the supply source for power growth, electricity demand growth that we see in AI," John Hess, CEO of shale producer Hess Corp, said in November at the Wolfe Research Oil and Gas Conference.
(Reporting by Mrinalika Roy in Bengaluru; Editing by Sriraj Kalluvila)
