Fossil Fuel Giants Pivot to Data Center Power Amid AI Boom

The artificial intelligence sector's growth is generating substantial demand for energy, prompting two major American energy companies, Williams and Chevron, to invest heavily in powering data centers. This trend is emerging as a significant new market for the fossil fuel industry, offering an avenue to sell natural gas and leverage existing infrastructure like pipelines and power plants.

BloombergNEF, an energy research group, recently published a report indicating that increased natural gas demand by the mid-2030s, partially driven by data centers, will necessitate a 36 percent increase in US production. The environmental implications are considerable; permit applications for just five of seven data-center-linked gas-fired power plants highlighted in the two companies' second-quarter reports could collectively emit up to 21 million tons of greenhouse gases annually. This figure is comparable to Guatemala's yearly emissions, though actual emissions might be lower than permitted levels.

Williams, a prominent oil and gas infrastructure company, is establishing a profitable data-center services division. Last year, the company announced plans for a power plant and associated pipeline infrastructure in Ohio, exclusively for a data center. This type of isolated, 'behind-the-meter' power infrastructure is gaining popularity among tech companies seeking to avoid grid connection delays and mitigate impacts on consumer electricity prices.

Williams is currently constructing six such gas plants for data centers nationwide, including four dedicated to Meta data centers in Ohio. In mid-July, Williams committed over $5 billion to its data center initiatives, attracting investment from KKR, a private equity firm. Permit applications for four of Williams' power plants suggest they could emit up to 9.6 million tons of greenhouse gases annually, equivalent to emissions from more than 22 average natural gas plants, according to the Environmental Protection Agency. A Williams spokesperson stated that these facilities are designed to operate significantly below permitted limits and comply with state air regulations, with internal modeling suggesting actual emissions could be two-thirds lower.

Beyond power generation, Williams is also developing a 9-mile natural gas pipeline in Ohio, anticipating its use by multiple data centers in the region, not just the Meta-affiliated plants. Chad Zamarin, Williams' president, indicated in an earnings call that the company intentionally 'overbuilt the capacity' of a pipeline serving one of its Meta power plants, envisioning it as an 'energy artery' for future projects.

Chevron is also making a substantial commitment to this sector, with a 2.67-gigawatt project planned for a Microsoft data center in Texas, dwarfing Williams' largest project for Meta at just under 700 megawatts. Chevron reported its best quarterly profits in six years, with the Microsoft partnership prominently featured in investor materials. In June, Chevron confirmed a 20-year power purchase agreement with Microsoft, which it characterizes as the only 'multi-gigawatt' project with such a 'long-term' contract.

The Chevron and Microsoft plant's permit suggests it could generate over 11.5 million tons of carbon-dioxide-equivalent emissions annually. A Chevron spokesperson confirmed the plant's design adheres to federal and state environmental standards, emphasizing its reliance on natural gas generation with potential for future renewable energy integration. Jeff Gustavson, president of Chevron's New Energies division, noted that this project presents a 'repeatable model,' with discussions already underway with other potential data center clients.

Ashish Sethia of BloombergNEF observes that many new data center developments are strategically located near gas pipelines, suggesting a broader trend that could benefit multiple infrastructure providers. The construction of large-scale, isolated power plants to meet the rapid demands of the AI industry represents a novel development. While Chevron's investor materials indicate a potential grid connection for the Microsoft plant post-2030, current grid interconnection processes in Texas face significant delays. Chevron has submitted an interconnection application, noting that future connection could allow for surplus power export and enhanced system redundancy.

Environmental groups express concern that increased fossil fuel infrastructure for data centers could impede the transition to renewable energy. Lukas Shankar-Ross of Friends of the Earth stated that this alliance provides a 'lifeline to an industry that we need to be phasing out.' He posited that if a private grid becomes fossil-gas dominated while the public grid shifts to renewables, companies like Microsoft would bear some responsibility for that outcome.