AI companies are building huge natural gas plants to power data centers. What could go wrong?

Who doesn’t love a good round of FOMO? From dot-com to Web 2.0, from virtual reality to blockchain: the tech industry has often been too afraid to miss a trend.

The AI ​​bubble is the big daddy of them all. Its first offspring – the rush to cut off power to data centers – is now fueling a frenzied effort to secure natural gas supplies and equipment. If FOMOs could have babies, then the AI ​​bubble already has grandchildren.

Microsoft said Tuesday it is working with Chevron and Engine No. 1 build a natural gas power plant in West Texas that could grow to 5 gigawatts of electricity. Googling this week confirmed that it is partnering with Crusoe to build a 933 MW natural gas power plant in North Texas. And last week, Meta announced it would add another seven natural gas plants to its Hyperion data center in Louisiana, giving the site a capacity of 7.46 GW – enough to power the entire state of South Dakota.

Are we missing someone?

Recent investments have been concentrated in the southern US, which has some of the largest natural gas reserves in the world. Recently, the US Geological Survey estimated that there is enough in one region to power the entire United States 10 months on itself. Every data center operator seems to want a piece of it.

The battle for natural gas has led to a shortage of turbines for power plants, with prices likely to rise 195% by the end of this year compared to 2019 prices. according to to Wood Mackenzie. The equipment contributes 20% to 30% of the cost of a power plant. Companies won’t be able to place new orders until 2028, and it will take six years for the turbines to be delivered, the consultancy notes.

That means tech companies are betting that the AI ​​fever won’t break and that AI will continue to be needed exponential amounts of powerand that natural gas generation will be necessary for success in the AI ​​era.

They may come to regret that third assumption.

Although natural gas supplies in the US are plentiful, and because transportation of the fuel is not cheap, the country remains somewhat isolated from the turmoil in the Middle East. But supplies are not unlimited, and recently production growth in the three major regions – responsible for three-quarters of total US shale gas production – has increased. slowed down considerably.

It’s not clear how insulated tech companies are from price fluctuations, as none have disclosed specific terms of their agreements. Much will depend on how fixed the price is in those contracts.

Even if the contracted prices are as fixed as possible, the companies may still face repercussions.

Since natural gas generates about 40% of the electricity in the US, according to According to the Energy Information Administration, electricity prices are closely tied to natural gas prices. Technology companies may be able to protect themselves from criticism for a while by putting their gas-fired power stations behind the meter – skipping the electricity grid and connecting them directly to their data centers. But natural gas is not an unlimited resource, and if their ambitions get too big, even the behind-the-meter operations could drive up energy prices for everyone. We’ve all seen how that turns out.

It won’t just be ordinary households that are upset, either. Other industries, including those that remain much more dependent on natural gas and cannot yet transition to renewable energy sources, might object to data centers taking up such a large share of resources. Powering a data center with wind, solar and batteries is easy. Running a petrochemical plant? Not so much.

Then there’s the weather. One cold winter could change the situation by increasing demand among households. Wells can freeze, causing supplies to shrink dramatically, as happened in Texas in 2021. When gas runs out, suppliers face a choice: keep the AI ​​data centers running or let people heat their homes?

By boosting natural gas supplies and moving behind the meter, technology companies can claim that they are “bringing in their own power” and not burdening the electricity grid. But in reality, they are just shifting their use from one network to another, the natural gas network. The AI ​​rush has illustrated how physically limited the digital world still is. Does it make sense for them to bet big on a finite resource? Tech companies might regret falling for the FOMO.