Alan Armstrong, chief executive officer of Williams Cos., speaks at the 2024 CERAWeek by S&P Global conference in Houston, Texas, US, on Wednesday, March 20, 2024.
F. Carter Smith | Bloomberg | Getty Images
The U.S. will fall behind in the artificial intelligence race if it does not embrace natural gas to help meet surging electricity demand from data centers, the CEO of one of the nation’s largest pipeline operators told CNBC.
“The only way we’re going to be able to keep up with the kind of power demand and the electrification that’s already afoot is natural gas,” Williams Companies CEO Alan Armstrong said in an interview Thursday. “If we deny ourselves that we’re going to fall behind in the AI race.”
Williams Companies handles about one-third of the natural gas in the U.S. through a pipeline network that spans more than 30,000 miles. Williams’ network includes the 10,000 mile Transcontinental Pipeline, or Transco, a crucial artery that serves virtually the entire eastern seaboard including Virginia, the world’s largest data center hub, and fast growing Southeast markets such as Georgia.
The tech sector’s expansion of data centers to support AI and the adoption of electric vehicles is projected to add 290 terawatt hours of electricity demand by the end of the decade in the U.S., according to a recent report by the energy consulting firm Rystad. This load growth is equivalent to the entire electricity demand of Turkey, the world’s 18th largest economy.
Executives at some the nation’s largest utilities have warned that failure to meet this surging electricity demand will jeopardize not just the artificial intelligence revolution, but economic growth across the board in the U.S. The role natural gas in helping to meet that demand is controversial as the country is simultaneously trying to transition to a clean energy economy through the rapid expansion of renewables.
‘Brick wall’
“We are going to run right up against a brick wall here and pretty quickly in terms of not having enough power available to do what we want to do on the AI side,” Armstrong said.
“I actually see this as a huge national security issue,” the CEO said. “We’re going to have to get out of our own way or we’re going to accidentally keep ourselves from being the power we can be in the AI space.”
Some of the largest independent data center developers, which build the infrastructure that houses servers for other companies, have approached Williams to receive natural gas capacity directly from the company’s pipelines, Armstrong said.
“Those groups that have very much had their brand be all green have come to us and said, ‘We got to work with you guys. We’ve run out of alternatives — we can’t meet the needs of our customers without using natural gas,'” Armstrong said, without disclosing names.
Williams projects natural gas to demand to grow 18% from 2023 through the end the decade across all sources of consumption, including power generation and liquid natural gas, Armstrong said. The company’s pipeline capacity is currently sold out, including on the vital Transco pipeline.
“We’re completely out of capacity ourselves,” Armstrong said. “So we just have to kind of beg, borrow and steal from other people’s capacity to do our best to make gas available.”
Surging demand
Williams is expanding capacity on Transco by 3.1 billion cubic feet per day, a 15% increase in contracted long-term capacity that will come online in the next few years, Armstrong said on the company’s first quarter earnings call.
The CEO said the U.S. has underinvested in natural gas capacity, with demand increasing 56% since 2005 while interstate capacity has increased by 26% over the same period and storage has expanded by 4%.
Goldman Sachs estimated in April report that $7.4 billion in pipeline investments are needed to meet demand center demand growth through 2030, with Williams and Kinder Morgan best positioned to benefit.
Williams’ stock has repeatedly hit 52-week highs recently with shares up 17% over the past three months and 26% since the start of the year. Research firm Argus recently upgraded the stock to buy, arguing Williams is poised to benefit from higher natural gas consumption with its pipeline network connected to key demand centers.
“We feel like we’ve got some really big competitive advantages,” Armstrong told CNBC. “Because in these heavily populated areas that we go through like Virginia and Maryland, Washington DC, North Carolina […] that is where they’re wanting to put the data centers because they’ve got good access to the communication systems, including the the Transatlantic fiber systems.”