Jul. 25—Artificial intelligence centers are coming on fast and they will have a big impact on the natural gas market as they require tremendous amounts of electricity.
Odessa oilman Kirk Edwards, State Rep. Brooks Landgraf and Waco economist Ray Perryman say the AI revolution is a complex scenario.
"The world is experiencing a massive move toward more artificial intelligence in almost every aspect of our lives," Edwards said. "But like everything, that 'AI' explosion will come at a huge cost and that cost will be in the amount of energy required to run the computing power of those data centers.
"The problem is, there is not enough energy currently available to feed this huge demand ahead. Solar and wind are not at all even contemplated because the data centers need consistent, reliable and on demand 24/7 power, which again cannot be done through renewables."
Edwards said the immediate answer is more power from natural gas and then down the road nuclear power as the new generation of fleets gets built and deployed.
"Natural gas is plentiful here in the United States and easy to deploy," he said. "That is of course if the industry does not run into the red tape that has been delaying or slowing down more plants being built.
"The AI future is here and it is coming on strong. It will be very interesting to see how industry and investors react on how to power the beast ahead."
Landgraf, an Odessa Republican who represents Ward, Winkler, Loving and Ector counties in the Texas Legislature in Austin, said Texas is the friendliest place in the world for businesses to set up shop and the flourishing crypto mining data centers that are popping up all over West Texas.
"We expect AI data centers, which have yet to arrive in the Permian Basin, to soon follow suit," Landgraf said. "These data centers are at the cutting edge of our burgeoning digital economy, bringing hundreds of new, diverse and high-paying jobs to the Permian Basin.
"We'd all love to see these benefits continue, but to achieve that we'll need to address the significant energy needs of such facilities."
He said AI computation is an intensive process that requires the analysis of vast amounts of data by complex learning models.
"Similarly, crypto mining involves computers solving difficult puzzles for hours on end," Landgraf said. "All this computation takes energy and lots of it.
"The largest data centers can require over 100 megawatts of power to operate at full capacity, or enough energy to power tens of thousands of homes. The need for large amounts of reliable energy is one reason so many data centers have chosen the Permian Basin, where they have direct access to our natural gas."
While the energy sector benefits from this increased demand during off-peak hours, Landgraf said, it can be problematic for grid reliability during high-usage times.
"For that reason the Legislature passed Senate Bill 1929 last year, which requires large, flexible energy customers including AI and crypto mining centers to register with the Electric Reliability Council of Texas and explicitly gives ERCOT the authority to establish operating restrictions on these facilities," he said. "Through this legislation ERCOT can ensure that data centers come off the grid during peak times.
"Although this approach can help our grid in a pinch, the long-term solution to the data center energy problem is the deployment of dispatchable power sources that can be turned on when needed and off when not."
Landgraf said that involves further supporting the construction of natural gas power plants and microgrids through grants as well as developing and operationalizing small modular nuclear reactors.
"With these dispatchable sources," he said, "the grid could reliably operate at all hours while keeping these data centers up and running.
"We have the natural resources to power all our homes, offices, factories and data centers; all we need is the infrastructure and planning to harness them effectively."
Citing the International Energy Agency, Perryman said global electricity consumption associated with data centers, AI and crypto mining is expected to double by 2026.
"In Texas, about half of electric power demand growth is expected to be due to these industries in the next few years," Perryman said. "The reason so much power is needed is the complex equipment and cooling systems needed for these facilities.
"With the rapid deployment of AI there has been a surge in the need for power-intensive data centers with no end in sight. Crypto mining has also been growing and with it the requirement for power."
Perryman said data centers and crypto mining involve large but transitory capital investments during construction.
"Once operational they employ relatively few people on an ongoing basis, but they will add substantially to the local tax base in many areas," he said. "As a source of economic activity they will not become more important than energy in the foreseeable future if ever.
"Nonetheless, they can be a notable benefit to the economy, generating some high quality jobs as well as property tax revenues while facilitating substantial gains in productivity across a broad spectrum."
Perryman said one important aspect of crypto mining operations is that in many cases they have agreed to allow their power to be interrupted during periods of extreme power demand.
"It's a win-win in that the mining operations support development of power infrastructure and generate revenues for power providers, but if demand surges due to extreme weather the operations can be temporarily shut down," he said. "They can also be located in areas proximate to supplies such as wind and solar farms, thereby putting less pressure on transmission infrastructure.
"This characteristic is particularly useful given that Texas doesn't have a capacity market and generators only receive revenue when they sell power, thus making it unprofitable to maintain power assets that are not heavily used," Perryman said. "By running constantly except during emergencies, these facilities provide the incentives to develop additional electric capacity.
"In contrast most data centers must be operational 24/7 and thus represent a constant element of base load. For Texas, as the size of the base load grows, so does the need for reliable generation capacity."
He said meeting this demand will require a variety of sources including natural gas-fired generation.
