The necessity of re-evaluating gas acquisition strategies for utilities in anticipation of a future with increased energy demands
The surge in electricity demand, driven by the rapidly growing electricity consumption of data centers, is reshaping the natural gas procurement strategies of U.S. utilities.
After nearly two decades of flat demand, electricity demand in the U.S. has reached an all-time high in 2024 and is expected to continue increasing. This unprecedented growth is largely due to the expanding electricity consumption of data centers, currently responsible for 5% of U.S. power consumption. By 2030, data centers are expected to double their current electricity consumption and drive up to 40% of all new electricity demand.
This surge directly impacts natural gas procurement strategies for utilities, as many data centers rely on natural gas–fired generation for reliable, dispatchable power. As a result, utilities are facing significant challenges in securing sufficient natural gas volumes affordably due to unpredictable daily fluctuations driven by data center operations, which often run 24/7.
To address these challenges, utilities are adopting hedging strategies that allow them to lower risk while still taking advantage of short-term market opportunities. These strategies involve adjusting volumes when prices drop or triggering hedges if prices spike. Some utilities are even employing programmatic hedging, which locks in gas prices over fixed intervals, regardless of market conditions.
However, the increasing complexity of managing natural gas supply and storage necessitates a strategic, future-focused procurement strategy. Utilities must account for price and supply risks influenced by weather, pipeline congestion, LNG exports, and market prices. Data centers’ fast expansion forces utilities to adopt more strategic, risk-managed natural gas procurement.
In constrained regions like New England, co-optimization balances seasonal gas storage, renewable intermittency, and electrification. Some data center operators are securing dedicated long-term gas supply agreements to ensure uninterrupted on-site generation capacity, illustrating a strong link between data center growth and natural gas demand.
The risk is especially acute in Northeastern states due to fracking bans and pipeline permitting limitations that restrict access to reliable gas delivery. A phased hedging strategy over a three-to-five-year timeframe can be effective, with early focus on locking in certain volumes and later adaptation to market conditions.
The proliferation of energy storage is a driving force in the transition to a cleaner, more distributed power system. As utilities navigate these challenges, they must also consider environmental and grid reliability concerns. While gas-fired power supports data center reliability, the overall increase in natural gas demand poses environmental challenges amid broader decarbonization goals, pressing utilities to innovate grid management and consider flexible demand programs.
Thus, the expanding electricity consumption of data centers is reshaping U.S. utilities’ natural gas procurement from volume forecasting and risk management to infrastructure planning and contractual arrangements, with significant implications for energy markets and grid decarbonization efforts through at least 2030.
[1] McKinsey & Company. (2020). The data center opportunity: Powering the digital economy. [2] U.S. Department of Energy's Lawrence Berkeley National Laboratory. (2020). Data Center Energy Efficiency: Federal Energy Management Program. [4] U.S. Department of Energy's Lawrence Berkeley National Laboratory. (2020). The Role of Data Centers in the U.S. Electric Power Sector.
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