Artificial intelligence has taken center stage on Wall Street, with investors eagerly anticipating its transformative impact. JPMorgan Chase CEO Jamie Dimon likened the upcoming AI revolution to historical game-changers like the printing press and the Internet, recognizing its potential to reshape industries. This awe-inspiring development has seen AI create feature-length movies, identify medical conditions in brain scans, and autonomously produce music and art.
The key driver behind the AI revolution is computing power, with major semiconductor manufacturers experiencing a surge in demand for their products as tech firms compete for processing capabilities. These industry giants have committed to investing billions in processors and data centers to support AI capabilities like ChatGPT and DALL-E. However, a crucial concern is where the power will come from to sustain the expected AI boom, as data centers require significant energy consumption.
The solution to powering AI lies in domestic natural gas, particularly in regions like the Haynesville basin in the United States. Following the conflict in Ukraine, natural gas prices soared, but have since dropped due to warm winters. With natural gas prices currently low, it presents a cost-effective and reliable alternative to coal for power generation, especially as the demand for base load power supply increases with AI and electric vehicles.
Data centers globally consumed a significant amount of energy in 2022, and this consumption is expected to double by 2026, with AI playing a major role. While renewable energy sources have made progress, gas-fired generation remains essential for grid stability. The US is projected to commission new gas-fired power plants to meet the rising demand, but additional drilling activity may be necessary to support AI data centers’ skyrocketing power consumption by 2030.
As natural gas emerges as a key energy source for AI data centers, companies are considering building facilities closer to gas plants to access affordable gas and reduce computation costs. Innovations such as technology to utilize excess natural gas usually flared at oil well pads are being developed to capitalize on cost-effective energy sources. Pipelines remain a critical component of transporting natural gas, but companies are hesitant to invest in their construction, leading to challenges in transporting gas away from the wellhead.
Ultimately, American natural gas is expected to experience a surge in demand over the next decade, driven in part by AI computing requirements. Investors are encouraged to explore opportunities in pipelines, upstream gas companies, and entities positioned to benefit from the expansion of US LNG capacity. With current natural gas prices presenting significant discounts from two years ago, the growth potential driven by AI at an attractive value is unmatched.
