Jerry Jones bought another $100 million worth of shale gas fracker Comstock Resources last week.
Photograph by Matt Hawthorne/The Forbes CollectionArtificial intelligence is hungry, not just for the fastest Nvidia chips, but for electricity. New servers running AI training models can feature 8 GPUs that consume 700 watts each. And Nvidia’s newest Blackwell B200 chip will draw 1,200 watts — more than the average house.
Keeping up with the demands of A.I. will require building dozens of new server farms over the next few years, and dozens of power plants to run them. Wind farms and solar panels can meet a lot of that demand, but far from all of it, says analyst Michael Blum of Wells Fargo Securities in an eye-popping new report. He figures that by 2030 artificial intelligence will require an incremental 700 terawatthours per year — more than the total electricity consumption of Germany — requiring a 16% expansion of the U.S. electric grid. And that’s just his base case. If A.I. really catches on, we’ll need a 20% bigger grid just to feed it.
Sure, wind and solar power will help. But the continued growth of large-scale renewable energy is seriously limited by NIMBYs blocking new long-haul transmission line projects. As a result, writes Blum, “renewables may not be able to scale fast enough to meet demand. New natural gas power plants will likely have to play a role in supplying power for new AI datacenters.” Blum’s team figures that if gas fuels 40% of the incremental AI load, that will require a dedicated supply of 7 billion cubic feet per day, up to 16 bcfd in a high-case scenario.
Time to load up. At a recent $1.50 per million cubic feet, natural gas is the cheapest it has been in 25 years, down from $9.50 in after Russia invaded Ukraine in 2022, setting off a mad scramble in Europe for cargoes of American LNG to replace Russian gas. Since then America’s shale gas producers have faced a perfect storm. Europe’s gas supply is now sorted; more wind and solar power is coming on to the grid all the time; the Biden Administration announced a stall on future LNG export projects. To top it off, a relatively mild winter limited gas demanded for heating. Pumping a record 105 billion cubic feet per day (most of it from shale fracking), the U.S. has oodles of gas.
Dallas billionaire Jerry Jones bought $100 million more shares in gas driller Comstock Resources (CRK) last week. The NFL Cowboys honcho already owns 76% of Comstock, so why buy more now? Because it’s beaten down. Comstock had a tough 2023. Revenues fell 60% to $1.3 billion as natural gas prices plunged. Meanwhile cash on hand dwindled to $17 million at year’s end, as the amount of capital Comstock was investing in drilling and acquisitions outstripped the dollars flowing in. So far this year is even worse; with gas prices continuing to slide Comstock even had to abandon its dividend.
Amazon's new datacenter in Aldie, Virginia will focus on cloud computing, streaming, and artificial intelligence.
gettyComstock shares had fallen 40% in five months when Jones on March 15 inked his $100 million private placement with the company for 12.5 million shares at $8. Comstock is now trading at $9.27, for a p/e valuation of 12 times 2023’s depressed earnings (but just 2x 2022). Producing 1.5 billion cubic feet a day, with at least 10 years worth of drilling left to do on its 550,000 acres in Louisiana and Texas, Comstock is a pure play bet on a resurgence in natural gas, and especially growth in LNG. If you hate the Cowboys and wouldn't dream of investing alongside Jerry Jones, there are plenty of other ways to get gas exposure, through bigger and financially stronger companies like Chesapeake Energy
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There are more targeted ways to bet on A.I.’s appetite for energy. Big datacenters are not evenly dispersed throughout the country. The hotspot, for many years, has been “Datacenter Alley” in northern Virginia, near Washington, D.C. — which now has some 75 new datacenters under construction, requiring 1,300 megawatts of new electricity supply. Following far behind in second place comes Phoenix with 700 megawatts under construction, followed by Silicon Valley, Chicago, Atlanta and Dallas. The gas pipeline operator with a direct flow into Datacenter Alley is Williams (WMB, p/e 14, yields 5%), which owns the 10,000-mile Transco pipeline system, stretching from the Gulf Coast through the northeast. Also intersecting datacenter hotspots are Enbridge
Pipeline investor Simon Lack likes all three of those companies, and says that the sector looks especially healthy right now, having reduced leverage after years of rapid expansions to handle booming oil and gas volumes. “Companies are not spending as much on building new lines because it is hard to do. I used to think climate extremists were trying to put pipelines out of business, but they’ve inadvertantly made them better investments,” says Lack, who manages $350 million, mostly in the Catalyst Energy Infrastructure Fund, up 17% in the past year. “That’s because by blocking projects they’ve forced capital spending to come down, and a dollar not spent on capex is another dollar for dividends.” It took Sen. Joe Manchin years of political maneuvering to finally push through West Virginia's Mountain Valley Pipeline.
Gas prices will have to go up in order to incentivize drillers and line operators to meet demand growth, but Lack thinks the economics will continue to be good for America's LNG export business — because there is still a lot of coal to be replaced with cleaner gas. Cheniere Energy (LNG, p/e 4) leads the U.S. LNG industry. Lack likes that Cheniere has more megaprojects coming on line and that when compared with the other pipeline and processing companies, it spends the least on maintenance as a percentage of operating income, which last year amounted to $9 billion. U.S. exports are set to double to 24 billion cubic feet per day within a decade. And that’s only counting the already approved projects unaffected by Biden’s LNG permitorium, which last week Energy Secretary Jennifer Granholm said would only be temporary — good news for A.I. datacenter developers in the rest of the world.
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What could limit A.I. demand for natural gas? Renewable energy is stuck out in the wilderness without enough transmission lines to bring it to population centers. In 2022 high-voltage line construction hit a record low of just 675 miles nationwide, according to American Clean Power Association. Generous federal subsidies are available, but politicians and developers still face a slog in pushing through NIMBY concerns.
It’s too early to count on a new wave of small-scale, zero-carbon nuclear power plants. But you gotta dream. Microsoft’s
Last thought: according to estimates from the federal Energy Information Administration, U.S. miners of Bitcoin
