Natural gas prices have seen a significant rise in the past quarter, driven by strong demand linked to the flourishing adoption of artificial intelligence (AI) and its pivotal role in the shift to renewable energy.
As the world moves towards reducing its carbon footprint, natural gas is expected to play a vital part in meeting energy needs. The AI boom is also set to boost its use in electricity consumption. Since mid-April, US natural gas futures prices have surged by about 62%, while Dutch gas futures have climbed by 18%. This increase is attributed to heightened geopolitical tensions in the Middle East, reduced production in the US, supply disruptions in Norway, and growing demand expectations.
S&P Global Commodity Insights forecasts a 30% increase in global power demand over the next decade, including data center demand. Natural gas is seen as crucial in providing a stable power source, with an expected addition of 47 gigawatts per year between 2024 and 2035.
Emerging markets in Asia, driven by population growth, industrial expansion, and the push towards decarbonization, are expected to drive significant growth in gas demand. Although short-term supply may be met with increased LNG investments, long-term demands will necessitate new projects.
China has seen a remarkable surge in LNG-fueled heavy-duty trucks, up by 459% compared to last year, due to cost-effectiveness and environmental advantages. Analysts predict that electric vehicles and LNG-powered trucks could replace a notable portion of diesel and petrol consumption in China this year.
In the US, electricity demand is projected to grow by up to 20% by 2030, largely due to AI’s increasing power needs. Data center infrastructure alone is expected to demand 323 terawatt hours of electricity, significantly higher than New York City’s current annual consumption.
Major tech companies like Amazon, Alphabet, Microsoft, and Meta are heavily invested in data center infrastructure, driving up energy consumption. Despite renewable energy’s growth, natural gas remains a crucial part of the energy mix, potentially supplying 60% of AI’s power needs.
Supply disruptions, such as outages in Norway and reduced US production, have contributed to recent price spikes in natural gas. Dutch gas futures hit a high of €36.01 per megawatt-hour in early June due to a plant outage in Norway. Norway and the US have become key gas suppliers to Europe amid geopolitical shifts.
US gas production dipped by about 9% in 2024 due to reduced drilling and delayed projects, averaging 96.9 billion cubic feet per day in May.
Looking ahead, a hot summer in the Northern Hemisphere could further boost demand for natural gas, particularly for cooling purposes. Despite recent price retreats, upward pressure on natural gas prices may persist in the coming months.