US energy companies poised to meet surging power demand

For the first time in 15 years, electricity demand in the United States is growing. This growth, combined with the power needs of emerging markets and data centers worldwide, creates new opportunities and challenges for providers.

Those were among the topics discussed at the Northeast Energy Summit, held Oct. 16 in Pittsburgh. BOK Financial® brought oil and natural gas operators together for the first-of-its-kind forum, which took a deep dive into the Northeast energy markets and Marcellus/Utica Shales. Experts highlighted key economic drivers, the presidential election, energy prices, emerging markets, and the correlation between data centers and the natural gas industry—a central theme at the summit.

“I’m bullish about the energy sector in general,” said Matt Stephani, president of Cavanal Hill Investment Management, Inc. Over the next five to 10 years, he projects that energy demand will come from emerging economies like India gaining access to cheap energy sources and electricity, as well as from data centers worldwide, related to the adoption of artificial intelligence (AI).

“If you look at how countries move from poverty to wealth, access to cheap energy is key” he said. “From a secular standpoint, there is a growth opportunity in energy, especially for transportation. And this is going to apply particularly to natural gas because of the United States’ ability to export significant quantities now.” U.S. natural gas is becoming a global market with liquified natural gas (LNG) export capacity expected to be around 20% of U.S. production over the next few years.

Another factor: electric vehicles (EV). EVs are going to grow, said Dennis Kissler, senior vice president of trading at BOK Financial. “When the EV market grows, it will cause more pull on the electricity grid. We’ll need more electricity. The green initiative has done that for us…it’s got to be natural gas. I’ve got a positive outlook in this space.”

Data centers may disrupt electricity demand
Demand could drive natural gas prices up due to significant increases in data center electricity needs around the world. Stephani expects AI will have the greatest impact on electricity demand, followed by the power needs of electric cars, bitcoin and cryptocurrencies.

Data centers are already ramping up their demand for power, and that demand likely will grow with the development of more advanced AI, experts agreed. As Kissler explained, data centers currently pull around 3.5% of the power on the U.S. grid. “If that goes to 8% or 9%, the impact would be exponential,” he said.

How will the electric grid keep up? BOK Financial experts expect natural gas and nuclear energy will see the most growth, particularly in the Northeast U.S., because large tech companies are seeking locations for data centers with a mild climate, low humidity, access to trunkline broadband, large areas of available land and plentiful water for cooling.

“You guys are in the best area … the Marcellus is going to benefit from this,” Stephani said. “In addition to a favorable climate, Virginia and Pennsylvania also have access to broadband data lines, making them an ideal location for data center growth.”

“The natural gas is here in the Northeast,” Kissler agreed. “It’s ripe to put them up here because that’s where the power generation can be.”

Nuclear part of the picture
However, natural gas alone may not be enough to meet data centers’ large power needs, so Stephani expects nuclear energy will see a big boost with this tech boom as well.

Right now, nuclear energy’s presence in the U.S. is relatively small, contributing only 18.9% of the total annual electricity generated in the U.S., as of the end of 2021, according to the U.S. Energy Information Administration.

However, Microsoft recently signed a 20-year deal to restart the Unit 1 reactor at the Three Mile Island nuclear plant in Pennsylvania. While permits are still needed, its owner, Constellation Energy, expects to begin delivering power to the grid to offset electricity use by Microsoft’s nearby data center in 2028.

And AI’s demand for power is only going to increase.

AI’s economic impact extends beyond the energy sector
BOK Financial’s Chief Investment Strategist Steve Wyett also weighed in on the undeniable growing impact of AI on the broader U.S. economy. “The Fed’s initial take on AI is that 90% of the impact is going to be on the top 10% of wage earners,” he said. “That is completely different from past improvements in technology.”

While it will create increased demand for energy, Wyett noted that AI has the potential to impact economic growth by enabling increases in productivity and ultimately gross domestic product (GDP).

“In the end, we’re all looking at this as a tool. I think that the risk is if we ignore AI, we’re going to get run over by it. I don’t believe that the markets fully appreciate what this is going to mean,” he said. “This is an opportunity for companies to become so much more efficient from a cost standpoint. Margins can widen, which could be hugely positive from an equity standpoint.”

Additional reporting by Julie McGough.

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