Microsoft and Google Make Major Investments in Natural Gas

Tech Giants and the Natural Gas Frenzy

The tech industry is in a frenzy, driven by the fear of missing out on the next big trend. From the dot-com bubble to the rise of AI, this frantic race has led to a rush for energy to power data centers. Microsoft, Google, and Meta are at the forefront of this race, investing heavily in natural gas plants.

Microsoft recently announced a partnership with Chevron and Engine No. 1 to build a natural gas plant in West Texas. This facility could produce up to 5 gigawatts of electricity, a significant capacity to support its digital operations. Google, for its part, has teamed up with Crusoe to develop a 933-megawatt plant in North Texas, thereby strengthening its energy infrastructure.

Meta, on the other hand, has revealed the addition of seven new natural gas plants to its Hyperion data center in Louisiana. This expansion brings the total capacity of the site to 7.46 gigawatts, enough to power the entire state of South Dakota. These investments are primarily concentrated in the southern United States, a region rich in natural gas reserves.

A Strategic Region for Energy Supply

The southern United States is home to some of the largest natural gas reserves in the world. According to the US Geological Survey, a single region could supply energy to the entire United States for ten months. This abundance of resources attracts tech giants eager to secure their energy supplies for the future.

However, this rush for natural gas has led to a shortage of turbines necessary for building the plants. Prices for this equipment are expected to increase by 195% by the end of the year compared to 2019, according to Wood Mackenzie. Turbines account for between 20% and 30% of the total cost of a plant, and new orders will not be possible until 2028, with a six-year delivery time.

Implications for the Energy Market

Although the United States has abundant natural gas resources, production has recently slowed in the three major regions responsible for three-quarters of the country's shale gas output. This situation could affect electricity prices, which are closely tied to those of natural gas, the latter generating about 40% of the country's electricity.

Tech companies could bypass the power grid by directly connecting their plants to their data centers, but this could still drive up electricity prices for everyone. Other industries, which heavily rely on natural gas and cannot yet turn to renewable energy, may oppose this resource grab.

Risks Related to Weather Conditions

Price fluctuations and dependence on a limited resource pose risks for tech companies. A harsh winter could increase demand for natural gas, as occurred in Texas in 2021, when wellheads froze, significantly reducing supplies. Companies could then face tough choices between maintaining their operations and meeting the energy needs of consumers.

By securing natural gas supplies and moving behind the meter, tech companies can claim they are "bringing their own energy" and not straining the power grid. However, they are simply shifting their consumption from one grid to another, the natural gas grid. The rush for AI has illustrated how the digital world remains physically constrained. Is it wise for them to bet big on a finite resource? Tech companies may come to regret succumbing to FOMO.