US midterms to dampen data center demand outlook, boost shift to BTM projects

The election of Democratic governors to states with the largest data center queues could delay some projects and accelerate a shift to behind-the-meter power supply, panelists said at the LDC Natgas to Power Forum in Austin, Texas.

Gina Hinojosa's win in Texas is by far the most consequential of the Nov. 3 gubernatorial elections, David Braziel, vice president of North American Energy Markets at Novi Labs, said Nov. 11. In her campaign, Hinojosa promised to block permits for "unfair" data center projects. Texas has more data center projects than the combined total of the next three largest states, Ohio, Virginia and Pennsylvania, Braziel said.

In Texas alone, Novi Labs' RBN Energy has reduced its five-year gas demand growth outlook by 400 million cubic feet/day to 1 billion cubic feet/day. The election has not affected the outlook for projects already under construction, but RBN assumes it will delay other projects by at least a year and increase uncertainty, Braziel said.

The midterms might have less impact in states like Georgia, where most of the large projects are already under construction, Braziel said. RBN has revised its estimate for gas demand growth in the state down by just 20 MMcf/d. And local initiatives that passed on Nov. 3 "didn't affect capacity that already made our list," Braziel said.

The off-grid solution for data centers "is going to have to be heavily in favor, even more so than it was before the election," Jack Weixel, senior director at East Daley Analytics, said on the same panel. While governors have a degree of control over what gets on the grid, "these moratoriums don't necessarily apply to bring your own power."

That could reduce the overall impact on gas demand. BTM data centers create about twice the gas demand as those connected to the grid, where gas is just one of many technologies, Braziel said.

Overall, RBN Energy is forecasting 4.5 Bcf/d of incremental gas demand in the next five years based on its bottom-up assessment of projects, which is lower than a top-down view of 7.5 Bcf/d based on what grid operators and utilities are planning, Braziel said. "The queue isn't a forecast," he said. Data centers that got connected to ERCOT between 2022-24 "peaked at only about half the megawatts they asked for."

Data centers are already adding to gas demand: RBN estimates data center-related gas demand is 2.8 Bcf/d in 2026, up from 1.5 Bcf/d in 2024.

East Daley forecasts a similar 4.1 Bcf/d increase in demand by 2031 compared with 2026, based on projects it deems likely or very likely.

Prices

Increasing demand from data centers and LNG terminals will require higher prices to boost production in plays all over the country, as Permian Basin growth alone will not be enough, panelists said.

LNG is still the primary driver of gas demand growth: S&P Global Energy CERA estimates US feedgas demand will rise to almost 36 Bcf/d by 2031, more than double its level in 2025.

Futures markets appeared very calm despite rising demand, Mark Aufmuth, a managing director at BP, said during the panel. Strong gas storage inventories and a super El Niño weather pattern are keeping a lid on prices for this winter, Aufmuth said. But with calendar strips further out below $4/MMBtu, "it's an open question what the forward curve is signaling and how will producers respond."

Front-month NYMEX Henry Hub futures settled at $3.22/million British thermal unit on Nov. 11, while the January-March strip settled at $3.14/MMBtu, according to data from CME Group.

The lower-priced shoulder season months on the curve out to 2031 are priced below $3.50/MMBtu, according to Platts M2MS data on Nov. 11.

A $3.50/MMBtu trough price would be "great" for the Permian and "pretty good" for the Haynesville, Weixel said. But it's "not great" for other basins like Anadarko, Barnett, Uinta and Piceance. "In order to activate those Tier 2 basins, your price needs to signal primarily above about $4.10-$4.50/MMBtu," Weixel said.

The Permian alone will be unable to meet the increased demand as it faces an unfamiliar barrier: limited crude egress capacity.

Associated gas production can only grow by about 8 Bcf/d before the Permian starts to run out of crude egress capacity, Weixel said.

There could be room to push gas higher by drilling in higher-gas-to-oil-ratio parts of the Permian, Weixel said. "It is not impossible, but it is going to take some intent from the producers that are there," Weixel said. "The notion that Permian could be short natural gas is just crazy what we've seen for so many years in the basin."