U.S. Data Centers Risk European Gas Supply

While politics in Europe are set to undergo a shift this summer, the region’s energy industry finds itself in a relatively comfortable situation. Two mild winters have boosted natural gas storage to historic highs, and TTF prices, though still elevated due to Russia’s continued invasion of Ukraine, have stabilized between €25–€40 per MWh. Meanwhile, a new LNG export facility in the United States will be entering service shortly, increasing the liquidity of the global LNG market that the continent has turned to after the loss of Russian supply. However, this time of tranquility comes at the moment when a paradigm shift is underway in the United States. After two decades of stable or declining electricity demand, growing AI adoption is forcing many utilities to confront the prospect of rising electricity needs. Unfortunately, U.S. natural gas and electricity midstream infrastructure cannot quickly meet this challenge, likely creating competition for natural gas between new electricity demands from data centers and the LNG exports Europe depends on.

This is the first in a series of Insights examining AI’s impact on U.S. natural gas and electricity markets and the subsequent effects on U.S. LNG exports and European supply. This piece will discuss the current state of play, while future articles will cover challenges the U.S. will face in meeting rising electricity and LNG demands simultaneously, critical developments to monitor, when European supply risks are expected to peak, potential complications from protectionist U.S. policies, and the path forward for European supply.

As shown in the graphic below, two successive mild winters, along with a shift in policy to encourage storage refill, have pushed European inventories to historic highs.

LNG imports have been crucial in achieving these storage levels. Imports increased substantially after Russia invaded Ukraine, meeting 40% of Europe’s needs in 2023. The U.S. has become a core partner in supplying Europe, serving 13% of European demand in 2023 and reaching nearly 20% in May 2023.

Meanwhile, in the U.S., recent history has been dictated by two demand trends: flat electricity demand amid an increasing reliance on natural gas-fired generation as the coal fleet retires, and the introduction and growth of LNG exports. However, the speed of AI adoption has forced utilities to update their outlooks. For some utilities, this has meant a shift from flat to declining demand expectations to aggressive growth. This is especially true for utilities on the East Coast, which is home to the bulk of the U.S.’ existing data centers and the most projected data center growth.

Unfortunately, the region that has the most expected load growth also has some of the country’s lowest renewables penetration, as shown in the map below.

This means that load growth will have to be met with either coal or natural gas-fired generation, with natural gas set to meet the majority of new demand from data centers. While this puts utilities’ social capital at risk, as many will likely have to walk back decarbonization goals, it also introduces a physical gas supply risk for the region. The U.S.’ natural gas supply has boomed over the past 20 years; however, it is still finite and often limited by the pipelines required to move it. With limited ability to move gas from areas of supply to demand centers, the East Coast competes for the same gas in the Louisiana Gulf Coast that serves LNG exports. With the needs of both areas set to rise, the stage is set for competition between the needs of East Coast data centers and the U.S.’ LNG exports, which has become a core pillar of Europe’s supply. In the next piece of this series, we will examine the dynamics driving that competition.

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