The boss of the US's largest fossil fuel producer, EQT Energy (EQT.US), has stated that artificial intelligence data centers will become the largest growth point for natural gas demand in the United States over the next few years.
Over the past decade, consumption in the United States has skyrocketed. After generators replaced the more polluting coal, natural gas became the number one fuel for power plants. The startup of export facilities along the Gulf Coast has also added major new customers outside the United States.
However, artificial intelligence may bring a more sudden and dramatic impact on the US energy market. The enormous scale of electricity required to run data centers that train or execute artificial intelligence capabilities has become a major topic in the energy and technology industries this year. Last week, Microsoft reached an unprecedented 20-year agreement to purchase electricity from the restarted Three Mile Island nuclear power plant in Pennsylvania, highlighting the immense demand from technology companies.
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EQT CEO Toby Rice said on Tuesday that in the short term, artificial intelligence-related electricity demand is expected to translate into 6 billion to 13 billion cubic feet of natural gas per day. In comparison, the current total daily consumption in the United States is just over 100 billion cubic feet.
Rice said that EQT can develop new customers in Virginia, the hottest data center market in the United States. The company's Valley Pipeline, which became operational earlier this year, transports natural gas from the Marcellus Shale Basin to the state, a location favored by technology companies such as Amazon.
He sees similar opportunities in the Southeast United States and added that technology companies are also looking for places closer to EQT's hometown of Pittsburgh, as well as Ohio and West Virginia. The region already has infrastructure related to electricity.
In an interview in New York, Rice said, "People are looking for a gigawatt-scale footprint." "We have a lot of retired coal facilities, and the existing electricity infrastructure is already in place. You just need to build a power plant and replace coal with natural gas, which could be a faster opportunity."
Despite the transformative discussions surrounding artificial intelligence and energy, natural gas prices in the United States have remained low over the past two years. The current benchmark natural gas futures trade at around $2.50 per million British thermal units.
Rice said that prices may remain in the $2 to $3 range in the short term due to the mild weather last winter, which led to a surplus. He said that if temperatures return to normal next winter, it will take about six months to digest the surplus.
The EQT Group boss warned that if prices do rise, there could be a similar spike to that of 2022, when futures prices exceeded $10 after the invasion of Ukraine triggered turmoil in the global energy market.One reason he holds this view is the change in the structure of the U.S. electricity supply. In the past, when natural gas prices soared, many power plants could switch to coal-fired power generation. However, in recent years, many of these facilities have permanently switched to natural gas.
Rice said that this means that gasoline prices, which were originally capped at $5, may now rebound from $2 to $9, forcing factories and other industrial users to cut operations. He added that regional differences could be even more extreme, with natural gas prices in New York or Boston being limited by pipelines and reaching as high as $20. Rice said, "Be prepared for volatility."
If this rebound really becomes a reality, natural gas traders will closely watch EQT Corporation. In response to the recent price plunge, the company has actively reduced production, but it can resume production within a few hours if needed. Rice estimates that the daily natural gas production in the United States is about 101 billion cubic feet, and there is an additional 1 to 2 billion cubic feet that can be resumed in a short time. He said that EQT's production after the cut is about 1 billion cubic feet.
Rice said that at the benchmark Henry Hub delivery point, the marginal cost of bringing new U.S. products online is about $3.5 per million BTU. At present, it seems that producers may want to suppress some activities in 2025 due to futures prices next year being lower than those in 2025.
EQT's break-even point is $2, which Rice described as a "stress situation" that allows the company to cover drilling and operating costs and still generate free cash flow. He added that such a low break-even point will minimize hedging demand.
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