COMMODITIES 2025: Growth in US gas-fired power burn to ebb in 2025, despite bullish predictions

This is part of the COMMODITIES 2025 series where our reporters bring to you key themes that will drive commodities markets in 2025.

Bullish predictions over the expected growth in US gas-fired power burn are unlikely to materialize until sometime after 2025, as rising gas prices, slow datacenter load growth and grid-related constraints weigh on demand.

In 2024, electric utilities, natural gas midstream operators and even some gas producers have predicted strong growth in US gas-fired power demand due to the rapid adoption of artificial intelligence -- which has recently prompted a spate of new datacenter development plans. According to an analysis by S&P Global Commodity Insights, US utilities are projecting as much as 12.3 Bcf/d in incremental gas demand by 2035 to meet datacenter load growth -- excluding demand from other large industrial sources.

Following former President Donald Trump's reelection, industry leaders at the American Gas Association also expressed optimism in mid-December that the new administration's planned National Energy Council could allow gas to supply more of the incremental demand from datacenter power loads by creating a more consistent and streamlined federal energy policy.

According to some market analysts, though, gas-fired demand is likely to remain flat to modestly lower in 2025 before resuming an upward trajectory by the late 2020s. According to a recent forecast published by Commodity Insights, gas-fired power burn should average about 37 Bcf/d during the summer period from April to October 2025. In 2024, demand over the same seven-month period averaged 39.5 Bcf/d.

Higher prices

In the futures and forwards markets, traders have long been pricing in higher benchmark Henry Hub gas in 2025, amid expectations that US producers will continue to hold the line on output next year. Many are also hopeful that the domestic gas storage surplus will drift back toward the five-year average.

Although US producers are breathing a collective sigh of relief over those bullish market predictions, higher prices could also limit the competitiveness of gas vis-a-vis coal in the power generation stack.

As of late December, the Henry Hub 2025 forward gas curve is now trading just below $3.50/MMBtu with all but a couple of calendar months -- March and April -- pricing above $3, according to M2MS forward gas data published by Platts, part of Commodity Insights.

"The jump in gas prices from 2024 to 2025 is contributing to a substitution of coal for gas generation," said Ben Levitt, associate director, research and analysis at Commodity Insights, in a recent interview.

"[Our forecast] has gas prices at the PJM Western Hub, a major power price hub, nearly doubling from 2024 to 2025 and going even higher in 2026," he said, referring to the S&P Global Commodity Insights North America Power Market Outlook, Planning case published in December 2024.

Driven largely by higher gas prices, US coal generation is projected to rise by nearly 30% from 2024 to 2025, even as annual coal retirements nearly double. Total US gas generation, meanwhile, is expected to retreat by about 1%-2% in 2025, according to the Commodity Insights market outlook.

Datacenter expansion

Slower-than-expected growth in gas demand from data centers is another factor that will likely weigh on power burn demand in 2025, according to Levitt.

"If you think about, you know, when ChatGPT hit, in November 2022, it took about a year for the implications to electricity demand to kind of materialize. And then it takes, you know, a couple of years to design, site and construct the data centers. Some of that probably had already been in the queue, but that kind of timeline takes you out to late 2025 or 2026," he said.

Campbell Faulkner, senior vice president at OTC Global Holdings, agreed. In a recent interview, Faulkner said that he was doubtful the US datacenter buildout would happen as rapidly as some are expecting.

"[There's a] a mix where we are seeing more on-edge compute versus all in the data center just largely because of cost, speed and everything else," he said, referring to the increasing volume of computing done on phones, tablets and laptops. "You know, we are kind of hitting that natural part of any cycle where you do see kind of cost optimization as we build this out," he said.

For the US gas market, the slower-than-expected buildout of data centers -- and steady improvements in computing efficiency -- could delay, until the late 2020s, much of the anticipated growth in gas-fired power burn required to meet electric loads for artificial intelligence and everyday computing.

Grid constraints

Grid-related constraints are another factor that could limit the growth in power burn demand next year. According to Faulkner, the continued expansion of US gas-fired power demand has hit a kind of natural limitation point because of transmission constraints and generation interconnection queues.

"Gas penetration is also not going up largely because a lot of the units that, in theory, would be burning -- basically are kind of inefficient," he said. "And since they are older, single-cycle turbines, combustion turbines -- not newbuild, combined cycle -- those require EPA waivers to run, particularly during heavy load times."

Over at least the next 12 to 24 months, Faulkner expects those factors, along with higher gas prices and slower-than-anticipated datacenter demand growth, will keep downward pressure on US power sector gas demand, which he sees beginning to rise again by the late 2020s.