Originally published for customers July 12, 2024.
What’s the issue?
With earnings calls about to kick off, it’s safe to say that energy industry calls will likely focus on projections for an increase in power demand driven by AI, which, for the gas pipeline industry, will likely lead to a significant uptick in the need for its services.
Why does it matter?
An expansion of our country’s gas pipeline system through increased capacity, lateral expansion and perhaps entirely new systems must be part of the solution to serve the growth in power demand with a reliable, baseload fuel source.
What’s our view?
But with the drums beating progressively louder, it’s easy to forget that we’re in the early innings. While project filings at FERC in 2024 show a significant uptick in new planned capacity to the interstate system, that growth is primarily to feed LNG demand and various other market needs which don’t appear to include demand for gas to power an historic buildout of the data center industry. That will likely change and we will be watching.
With earnings calls about to kick off, it’s safe to say that energy industry discussions will likely focus on projections for an increase in power demand driven by AI. For the gas pipeline industry, this will likely lead to a significant uptick in the need for its services. Nearly all the power demand forecasters appear to be aligned, and we see no reason to disagree: the market is primed for growth and natural gas is a big part of that equation. Naturally, an expansion of our country’s gas pipeline system through increased capacity, lateral expansion, and perhaps entirely new systems must be part of the solution.
But with the demand drums beating progressively louder, it’s easy to forget that we’re in the early innings. While project filings at FERC in 2024 show a significant uptick in new planned capacity to the interstate system, that growth is primarily aimed at meeting LNG demand and other market needs, and does not yet include the expected surge in gas demand to power the historic buildout of the data center industry. We anticipate this will change and we’ll be watching.
Data Centers, Power Demand and Pipelines
Recent bank reports estimate that about 50 GW of incremental power generation capacity will be required to support U.S. data center power demand growth cumulatively through 2030. Meeting this demand will necessitate about $50 billion in capital investment in U.S. power generation capacity. Some forecasts predict that a majority of this demand will come from gas, which should be a major tailwind for energy infrastructure companies, especially gas pipeline projects.
While this growth will likely occur nationwide, one of the areas of greatest data center demand is in Virginia’s Data Center Alley, where a number of natural gas pipeline systems traverse Virginia and the general Southeast corridor. Pipelines in this region include Transco, Columbia Gas Pipeline, East Tennessee Gas Pipeline, Texas Eastern, MVP, and Dominion Transmission, any of which could require expansions and extensions to meet the incremental demand load over time. As shown in the Arbo map below, the footprints of these six pipelines are in close proximity to many existing data centers. Two pipelines in particular —Transco and Columbia Gas — run closest to Data Center Alley and are geographically well positioned to support additional demand.
As will likely be discussed during pipeline earnings calls, gas pipelines are primed to benefit by more expansions and higher rates. In areas around Data Center Alley, many gas pipelines are fully utilized and operate under take-or-pay or cost-of-service contracts. Therefore, the upside from increased data center power demand in the region could support investments into new laterals and higher rates.
Nonetheless, it remains to be seen whether the gas pipeline industry will benefit most from increased flows on existing assets or from expansions to accommodate new gas. Additionally, it is unclear whether data centers will connect directly to gas pipeline systems. Direct connectivity could result in lower pipeline capacity requirements given likely higher average utilizations at data centers when compared to average gas-fired power plants.
When Will Market Demand Meet Project Reality?
As with most growth discussions, it’s all about timing, and in the case of the pipeline industry, the market is looking for concrete examples of new project announcements tied to data center demand. One widely reported example apparently involved Amazon’s decision to power its Boardman, Oregon data centers with fuel cells powered by natural gas by connecting to TC Energy’s Gas Transmission Northwest Xpress Project pipeline. At the time, this appeared to be a concrete example of a hyperscale datacenter turning to the gas industry for reliable power delivered via pipeline.
However, according to local press, the month after a protest at Amazon’s headquarters by climate activists against the use of fossil energy, Amazon “withdrew its application to use natural gas, a company spokesperson confirmed, though they would not add more details about the size and scope of the data center, when it would open and from where it now plans to draw power.”
Shortly thereafter, TC Energy denied any discussions with Amazon about the project in a statement that clarified it “has never discussed or had plans with Amazon to directly deliver natural gas to them.” The statement also noted that the GTN XPress Project’s capacity is fully subscribed by its three project shippers, none of which is or was Amazon. Additionally, GTN confirmed that it had no agreements with Amazon to provide an interconnect or tap into the GTN Pipeline system.
What’s Being Filed at FERC in 2024?
While significant growth in the gas pipeline sector is likely to support rising demand, project filings in 2024, excluding smaller prior notice / blanket filings which are the most common at FERC, indicate that we are still in the early stages. So far this year, approximately 10 Bcf/d of new project capacity has been filed at FERC, which is significant when compared to prior years. However, excluding LNG-related projects, that number drops significantly to around 1.68 Bcf/d, primarily encompassing three projects that do not appear, at least in early project filings, to be tied to data center demand.
Here’s a quick run down of the key projects:
TC Energy’s ANR Heartland Project: The project will expand ANR’s system to provide up to 473,000 Dth/day of incremental firm transportation capacity to meet an in-service date of November 1, 2027. The additional capacity will meet market demand for increased natural gas supply in the Midwest, primarily from coal plant retirements.
Williams’s Southeast Supply Enhancement Project: The project is an expansion of Transco’s existing natural gas transmission system that will enable it to meet the growing natural gas-fired power generation, commercial, residential, and industrial demand in the mid-Atlantic and Southeast. The project has a targeted in-service date of November 1, 2027 and will provide 1,586,900 Dth/day of new firm transportation capacity from an existing Transco interconnection and from another interconnection with MVP.
Northern Natural Gas Companies’ Northern Lights 2025 Expansion Project: Though smaller than the other projects, the proposed facilities will provide additional winter peak day firm transportation service of approximately 46,064 Dth/day to serve residential, commercial and industrial customer market growth in Northern’s market area. This project is part of the Northern Lights project, a multi-year commitment to expand Northern’s market area capacity through 2026.
Interestingly, there’s also been a significant Section 7c development on the storage front, with a project designed to provide access to major sources of production, LNG exports, and traditional gas supplies along the Gulf Coast:
Enstor’s Mississippi Hub LLC: This is one of the largest recently filed FERC storage projects. It seeks to amend its current certificate to allow for the expansion of the MS Hub gas storage facility, which serves markets through its interconnects with Southern Natural Gas Company, Southeast Supply Header, and Transco. Upon completion, the project will increase the total working gas storage capacity to 56.3 Bcf, approximately 2.5 times the facility’s present capacity. MS Hub has requested that FERC issue a decision on the requested expansion by April 1, 2025.
Coming back to data centers, it’s perhaps more likely that the market could expect projects through the prior notice process, which involves smaller, lateral projects under $41.1 million. Our review of several hundred projects, while not exhaustive, has not identified such a project. As the data center drum continues to beat, we will continue to watch for filings at FERC and at the state level that show evidence of pipeline companies beginning to march along.