Build It and They Will Come (If You Can Power It)

The datacenter plans of AI hyperscalers will require unprecedented growth in electricity supply. There will be bottlenecks everywhere, including the electric grid, equipment for generation, and transport for fuels. The build-out of wind and solar over the last decade-plus doesn’t meet the need because of intermittency and lack of battery storage. Natural gas will be the go-to fuel, but production will have to increase by 10% over five years, on top of another 10% to meet the export needs of new LNG terminals. Hyperscaler datacenters will pursue “behind the meter” co-location strategies, scrambling for scarce generating equipment. Gas prices have already doubled over the last 12 months, but the futures curve stretching out over a decade implies that prices are already high enough to bring forth the necessary production from America’s virtually limitless gas reserves.