Gas utilities in the US advance data center deals as power bottlenecks persist

For the past year, gas utility operators have been highlighting opportunities to fuel on-site power generation at data centers, and some of those prospects are now bearing fruit.

Natural gas distributors with midstream assets have been early to make deals with data centers. Other gas utilities continued to advance potential deals in 2025, with company leaders sizing up the opportunity and discussing hurdles to capture opportunities during recent earnings conference calls.

Many of the recently announced deals will ship gas to data centers in areas where 451 Research, a group within S&P Global Market Intelligence, has identified development booms. These areas include parts of Ohio, Pennsylvania and Texas.

Demand for grid power from hyperscale, leased and crypto-mining data centers is set to roughly double between 2024 and 2028, according to 451 Research. Challenges in securing grid connections have led developers to build on-site gas-fired power generation or locate near existing or repowered plants.

"It's a massive trend. I think every data center operator would be considering it," said Sam Huntington, director of North American Power at S&P Global Commodity Insights.

Deals start getting done

Atmos Energy Corp. on Aug. 7 said its transmission subsidiary, Atmos Pipeline (Texas), contracted to ship about 30 Bcf of gas annually to a data center with collocated gas-fired generation.

In July, Chesapeake Utilities Corp. announced that its Ohio transmission company, Aspire Energy Express LLC, signed a deal to build a $10 million pipeline that will serve a fuel cell facility at a data center campus.

Also in July, the Frontier Group of Companies LLC announced that National Fuel Gas Supply Corp. would transport gas to Frontier's coal-to-gas power plant conversion, which will power a collocated data center. National Fuel Supply will build a 7-mile (11.2 km) pipeline lateral to connect to the development from its Line N system in western Pennsylvania, National Fuel Gas President and CEO David Bauer said on a July 31 conference call.

National Fuel Supply currently has a precedent agreement to provide 205,000 Dth/d to the facility, Bauer said. Given Frontier's plans to bring 3 GW of generation online, "there is very real potential for us to provide significant additional pipeline capacity to the facility in future years," Bauer said.

On Aug. 1, Enbridge President and CEO Greg Ebel confirmed that subsidiary Texas Eastern Transmission LP will interconnect with another Pennsylvania coal-to-gas conversion project in Homer City. The 4.4-GW generating facility will power a data center campus.

Operator puts opportunity in context

Homer City's final supply agreements with Enbridge and another company will determine whether Texas Eastern builds a simple lateral or pursues a larger expansion, Ebel said.

Texas Eastern has about 10 Bcf/d of underutilized receipt potential in the region, which allows for "very economical pipeline expansions" to serve new demand, said Cynthia Hansen, president of gas transmission and midstream at Enbridge.

Ebel noted that serving a new 1-GW power plant typically does not require a massive pipeline buildout. Investors should expect a series of expansions with budgets topping out around $100 million, he said.

"Sometimes I think people are looking for the big splash billion-dollar pipeline projects," Ebel said. "I think those are going to be few and far between for individual data centers."

He said Enbridge's power and midstream units would handle long-term supply contracts with large data center players like Alphabet and Meta Platforms, while Enbridge's gas utilities were more likely to serve smaller data center operators, which present greater credit risk.

Regulated utilities have "a much larger scope of customers we have a requirement to serve," Ebel said. The typical cost-of-service structure in utility ratemaking means serving smaller data center developers is "super safe for the investor and very fair for the customer," he added.

These developers might have to make contributions to offset the cost of new infrastructure needed to serve them, Ebel said.

Gas utilities look for ways around hurdles

Serving medium-sized data centers is a "sweet spot" for AltaGas's gas utilities, Donald Jenkins, president of the company's utilities segment, said in May.

Building infrastructure to serve those facilities can add $10 million to $40 million of incremental rate base per project, potentially boosting AltaGas' annual rate base growth by a percentage point, President and CEO Vern Yu told analysts at the time.

However, as gas utilities continue to receive inquiries from data center developers seeking a faster path to market, some face challenges.

One Gas Chief Operating Officer Curtis Dinan said his company continues to receive a "quite significant" number of calls from data center developers, manufacturers and power generators.

One Gas is steering developers toward locations where its system has more capacity, aligning with new demand with planned reinforcements in Austin, Texas, and other areas, Dinan said on an Aug. 6 conference call. That approach fosters more efficient capital deployment and the best opportunity for customers, he added.

AltaGas subsidiary Washington Gas Light was among the first to highlight the data center opportunity for gas utilities. On Aug. 1, AltaGas leaders said they were ready to deploy their distribution assets in Maryland, Washington, DC, and Michigan, but parties across the value chain were still working to access long-haul pipeline capacity and procure the equipment needed to generate on-site power.

"The gating for a full flurry of data centers in our markets ... is the full path of getting that energy to the data center," Yu said. "We continue to see lots of customer interest, but it is taking a while to get all of those moving parts."

Backlogs develop in gas value chain

Data center developers are now grappling with a backlog for large gas turbines. This has spurred demand for smaller power generation technology, which is less economical to operate than large turbines but more readily available, said Huntington.

Commodity Insights has tracked an uptick in orders for this scaled-down equipment in recent months. Awarded orders for small gas turbines that will be collocated with North American data centers totaled about 1.9 GW over the past year. Including other options like reciprocating engines and fuel cells, that figure jumps to roughly 3.2 GW.

The number will continue to grow relatively quickly, according to Ben Levitt, associate director for gas, power and energy futures at Commodity Insights.

But bottlenecks could also develop for small generation technologies, Huntington said. These markets have historically been niche, so manufacturers lack the production capacity on the scale of large turbine makers.

"They'll need to ramp up, too," Huntington said.