Natural gas has transitioned from a secondary fuel to a leading source of electricity generation in the United States, replacing coal as the preferred choice for cleaner power. As demand continues to rise, investors are increasingly drawn to natural gas for its reliability in providing electricity.
“Natural gas-fired generation is becoming more attractive to investors due to its essential role in balancing the grid amidst growing energy demand, accelerated coal retirements, and a rise in renewable energy sources,” said Corianna Mah, an analyst at Enverus. Her comments followed the release of a report examining natural gas’s impact on grid security and reliability in the U.S.
The shift towards renewable energy sources has made natural gas a key player in the U.S. energy landscape. Its rise to dominance can be attributed to abundant supplies from the shale boom and its cleaner burning properties compared to coal. Currently, natural gas accounts for 43% of the nation’s electricity generation, far surpassing the combined total of wind, solar, and hydro, which contribute only 21.4%. Unlike wind and solar, natural gas can provide on-demand electricity, making it a critical resource for meeting energy needs.
This advantage has gained renewed attention as major technology companies rush to secure reliable electricity for data centers that support their artificial intelligence initiatives. While renewable sources are environmentally friendly, they cannot deliver the steady, round-the-clock power required by these facilities. Consequently, many tech firms are increasingly relying on natural gas and nuclear power.
“Natural gas demand in North America is set to grow significantly,” stated François Poirier, CEO of TC Energy, in August. “We are witnessing record highs in natural gas demand, which is expected to rise by nearly 40 billion cubic feet per day by 2035.”
Data from the climate organization Ember reveals that natural gas has elevated the U.S.’s reliance on hydrocarbons for electricity above that of China. Since June 2024, rising electricity demand during the summer months has primarily been met through increased gas-fired generation. In contrast, a recovery in China’s hydropower output has somewhat reduced its reliance on coal.
As a result, hydrocarbons, including natural gas and coal, have made up an average of 62.4% of total electricity output in the U.S. since June. This figure is higher than China’s fossil fuel share, which accounted for 60.5% during the same period.
Looking ahead, this trend is expected to continue. BP’s CEO, Murray Auchincloss, recently indicated that the AI competition among tech giants will likely further increase natural gas demand in the U.S. “Hyperscalers are driving extraordinary demand for natural gas right now,” he noted during an investor presentation, as reported by Bloomberg. “I’m optimistic about natural gas prices for the next decade.”
Industry executives share this optimism due to the rising demand fueled by the tech sector and population growth, which caught power utilities off guard earlier this year. Many had assumed demand growth had peaked in the 2010s after a prolonged plateau.
However, Wood Mackenzie analysts pointed out that “booming data-center development, a revival in energy-intensive U.S. manufacturing, and increased electrification in transport and heating” have led to “electricity demand growth not seen since the 1990s.”
Despite the rising demand, the supply of natural gas could become strained. Power generation from natural gas surged by 20% in the first nine months of this year compared to the same period in 2019. Its share of power supply rose from 38% to 43% over five years. Plans to add new gas-fired generation capacity are underway to meet this growing demand, but the process of bringing new power plants online can take years. This delay may lead to an imbalance in electricity market demand and higher prices in the near future.
Currently, U.S. natural gas production is declining due to persistently low market prices. While this situation may appear contradictory, much of the projected demand for electricity is based on future expectations rather than immediate needs. New generation capacity will be necessary to meet this anticipated surge in demand.
Regardless of opinions from government or transition circles, one fact remains clear: natural gas offers a dependable electricity supply that is unaffected by weather patterns. The increasing reliance of Big Tech on natural gas and its vital role in supporting AI development has highlighted this reliability.
Related Topics:
- Is Compressed Natural Gas Renewable?
- Does the U.S. Export Natural Gas to Europe?
- How is Compressed Natural Gas Made?