LNG, Data Centers, and the Future of Natural Gas

[Music] Welcome to Texoga Talks, where energy meets inside. The purpose of this podcast is to provide you with a candid conversation about our energy needs, our energy security, and your energy future. Texas Oil and Natural Gas have made our nation the world's energy leader, constantly innovating and investing to fuel the economy, protect the environment, and power the world. This industry is fast-paced, high-tech, and essential to improving modern life. And we're here to talk about it. You're listening to Texoga Talks, where energy meets inside. [Music] Welcome back to Texoga Talks, where energy does meet inside. I'm Todd Staples, president of the Texas Oil and Gas Association. They're delighted to have a candid conversation with you about some very important issues that are impacting our state, our nation, and our world. And that's about natural gas. Natural gas, how it's being demanded globally to meet the energy needs of the world, how natural gas is being asked to step up to meet the energy needs of data centers here in our country, and in our state. And to discuss these topics, we have economists extraordinaire, Dr. Dean Foreman. Dr. Cwomit is the chief economist of the Texas Oil and Gas Association. And Dean really does call balls and strikes on data, points, and digs down deep. And Dean, I'm glad that you're with me today to talk about these issues and how they affect our state and our nation. Thanks so much, Todd. It's always a pleasure. This issue that we're going to discuss today really is where technology, infrastructure, and policy come together in our nexus. On the LNG side, we're talking about the transformation of global natural gas markets, and it's akin to what we saw in oil of the last few decades. And with data centers, this is fascinating in the way it's growing up, but they're really the factories of the digital economy. And it's becoming one of the fastest sources now of natural gas demand. So Texas is uniquely positioned to supply both here. Well, Dean, I want to start kind of with a big picture is what I'm thinking here because if you're like me and our listeners and we're so glad you're tuning in with us today, you hear a lot of different projections. You hear a lot of different pieces of information and a lot of times that information is just not accurate. And it's and sometimes it's not done maliciously. Sometimes I think it may be, but the reality is these are dynamic situations. I think there are a lot of ideas out there, a lot of data centers that would like to be developed, but they're not at FID yet. And we know that a lot of LNG export facilities are still working on contracts to secure in order to meet that, you know, make certain that demand is there to make the economics right on these projects. But we want to really look at what it means to us here in Texas, what is what is our terms, what are we at in terms of our capacity of LNG? What do you think we are in development development of data centers and just our overall natural gas supply. So kind of let's start from 30,000 feet if you will and then we'll narrow down. So let's start with the LNG side and when we're looking at the number of facilities, EIA would say we can export up to five billion cubic feet per day of natural gas by LNG. But keep in mind we've got another six billion cubic feet per day of capacity to export by pipeline. So we've got substantial capacity there and it's growing and we'll talk about that down the line here for data centers. We're only second to California. So existing data centers for data, street sources, some 379 of them in the state, about half of them are concentrated around the Dallas, Fort Worth area. So that's one of the top data center hubs in the nation. Now, our BN energy, they recently spotlighted met as new 100 megawatt, hyper scale campus around Temple, Texas. That's just one part of the bigger story though we're seeing large scale campuses, Bob, have ran San Antonio, Microsoft has one there, Google, like also around the DFW area, they've got a $600 million investment in the red out campus. So we've got a large scale power land and restructural projects across the board that are being specifically marketed to hyper scale builders Amazon as well. So in short, Texas is becoming this cornerstone for the next generation of digital infrastructure that has big implications for how much reliable power and therefore natural gas we're going to need. These are not token investments you mentioned one specifically that 600 million dollars, many of these are drawing big capital expenditures. And along with that, it's going to be a it's going to create a new layer of demand on the power mix for the Urquat grid here in Texas, it seems to me. And so I know with the demands on natural gas, what's the indicator here for the increased demand on natural gas. Is there an example you can give us like on individual data centers and what that might look like. We can build it up and if you needed demand or electricity supply today, you might put in a diesel generator for the very near term and it's worth knowing that when we look at EIA's data year on year, diesel demand is actually up 5% year on year. So this is part of it when we go bring this back to natural gas and let's say natural gas is going to be what's supplying your data center. A single hyper scale campus, it can draw one to 500 megawatts of energy on a continual basis and some of the largest projects and develop development nationally can go up to a gigawatt here. But to put it in perspective, 100 gigawatts is roughly enough power for 20,000 homes and that translates to about 20, 25 million cubic feet per day of natural gas. So scale that up to 500 megawatts or a gigawatt and you're talking one to 200 million cubic feet per day from just one campus. Again, we're talking about several of those coming up across the state. So if we add up now, you know, San Antonio Dallas Houston and other centers, we could be talking six or 800 million cubic feet per day conservatively across Texas here. Wow, that's a big, that's a big, big boost and a big opportunity to use natural gas that we know is having a positive impact on the environmental criteria that we're looking for natural gas today, S and P release the study not too long ago that talked about the methane intensity has been cut by 50% in the Permian basin in the last two years when the carbon dioxide is continued to decline. And we're, you know, the industry has a goal of ending routine for you. So there's a lot of positives associated with that. You know, when I think about data centers as compared to some other industrial consumers and I think about the draw on the electricity demand, Dean. Explain to our listeners that data centers don't operate like a lot of industrial customers. There are some industrial customers that can ramp up and down based on the power cost and those types of things, but demand centers. I mean, data centers or constant demand center aren't they don't they more uniform in the loads that what they need. For sure, they run 24 seven and in the oil and natural gas industry, a lot of our especially downstream need is also 24 seven so we've got two kind of base load demands that are competing for natural gas and for electricity in general to grow operations in environmentally responsible ways. So it is growing. It is constant and that's really the nexus of how we need to look at this and a grid that's had increasing intermittency over time based on the next generation that's gone to place. Dean is is Earthquots what we're obviously focused on in Texas, but you look around the country as well. Anything different happening in PJM or some of these other ISOs that around the country are they managing differently than we are. Are you seeing other issues there? Well, there is a common issue as data centers are growing and load is growing nationwide. A lot of the grids across the country are facing similar challenges, but PJM is interesting because they came out not two weeks ago and had an announcement that they were going to require data centers to co locate or bring their own power solution to go with this. And that's really reflecting hard constraints and trying to build out the transmission and generation real time to go with this. Now in PJM and other grids across the country, you've got a fork or inner federal overlay in terms of the permitting and the execution of it. Yeah, for Erkott, we don't have that, but we do have just the most load growth in the country trying to meet these competing demands and then the natural gas infrastructure is probably the most rapid and its ability to build out across the country, but it's also being stretched in terms of abilities to fly this. So all of these projects means infrastructure is going to come along with it to me. I mean, I think about pipelines, I think about take away capacity and how in the Permian Basin producers have suffered pretty significantly. They've had negative pricing. They've got pricing in a discount to a wall. Can you tell it? I mean, can can we meet this infrastructure demands? Can we produce the level of volumes that we need to order to provide that steady supply to the market? And what kind of infrastructure are we going to need to keep up with this? So we are and we can't continue to do so. And just to ballpark it, we produce as Texas about 28 billion cubic feet per day of dry natural gas produce more of the well head, more of this marketed, but once you take natural gas liquids out, still around 28 billion cubic. heat per day, where the state to the month only requires for consumption across all the sectors, roughly half of that. So there's a lot of excess beyond what we produce and we have the ability to continue to grow that based on the productivity trends that are in place. Now to put it in perspective, the US is already today sending out about 15 billion cubic heat per day as LNG. That has the ability to flex based on how much is also going out by pipeline, total exports between LNG and pipeline for the US go upwards of 25 billion cubic feet per day. So roughly almost a quarter of what we're producing nationwide. The products that are, excuse me, projects for LNG that are on your construction or FID, final investment decision, are on track to roughly double the amount of LNG exports over the next six, seven years. This is pre-EIA. In Texas alone, we've got expansions of Corpus Christi. We've got plants under construction of golden paths or Arthur, Rio Grande LNG in the Brownsville area. So this should add another 8 billion cubic feet per day of exports over the next several years just from Texas. Now shifts the data center side. The absolute numbers today are smaller, but they're growing and importantly, as you said, this is based on 24/7 kind of demand. As we ballparked earlier, 100 megawatt facility, it's going to use 20, 25 million cubic feet per day. So building this up across Dallas, San Antonio, Central Texas, or Temple Houston area, conservatively, 6 or 800 million cubic feet per day, almost a billion cubic feet per day of the next few years just from data centers alone. So again, given how much headroom we've got above our production, it shouldn't be tightness, but we're going to need some infrastructure to make that happen. Well, we're going to need infrastructure and I'm sure there's some blisters that may not be, you know, take a daily deep dive in all in natural gas and capabilities. But the reality is, Dean, even though the Permian has become, having been a higher gas to all ratio, so we've seen a lot more gas coming out of the Permian and a lot more as expected, with the current infrastructure that has been in place for roughly the past 12 months or so. Natural gas plays, people have been throttling back. We haven't seen any aggressive growth and expansion and build out there just because of the overall depressed process. And so if this demand picks up like we anticipate, does the industry have the ability to expand production, considering we have the Permian, the Hainesville and Eagle Ford, or free predominant, you know, place right here in Texas. What, what does that stand in your opinion? Absolutely. The capacity is there. What you mentioned about the Permian becoming gas here, that's interesting because it's something the market really kind of got wrong. They expected that this last year, as we had come into the year, futures prices this year, to next winter, going four to five dollars per million B2 and they since come back, come back down considerably. But the expectation was that you would have less natural gas coming out of the Permian and lower oil production, per official forecast, EIA forecast coming out of the Permian. Well, it's continued to grow. We've continued to exceed expectations. We have natural gas now in storage. It's in the top 20 percent of the five year range. So it's that infrastructure build out that continued productivity and production combined with the ability to deliver it. And when we look at EIA data, by the way, the pipeline expansions, we've got up to 45 billion cubic feet per day worth of pipeline egress capacity is being built out across the state. Now that half of that, let's hold a straight out more time. What, and that's just in Texas that you're talking about. These are just pipelines that in the origin or in the terminus are Texas. And that number again was 45 billion cubic per day. Yeah, it's going all over, but it's a phenomenal number. That's the queue. And again, more than half of that is under construction right now. Wow. That folks, that means that Texas is geared up. Texas remains open for business. The oil and gas industry is stepping up based on the projected demand that we're seeing. And as Dr. Foreman has pointed out in his research, prices have not been impacted because the marketplace has the ability to respond. Texas and other gas plays are producing the natural gas that's there. And consumers are benefiting greatly. We're benefiting from jobs here at home. We're benefiting from a significant impact of tax revenues for our state from this natural gas demand that's occurring there. This is all good news. Dean, there's a lot more for us to discuss. I want to take a quick break and let's hear from our sponsor, the Texoga Health Care Plan, which is powered by Blue Cross Blue Shield of Texas. It's a phenomenal way for companies to offer competitive health benefits and manage costs and to provide quality service through Blue Cross Blue Shield to their employees. Let's take a quick listen. Thanks to a partnership between Texoga and Blue Cross Blue Shield of Texas. Now more than ever, it's easy for small businesses to provide affordable group health coverage for the employees through the Texoga Health Care Plan. With a Texoga Plan, members can choose the right health care plan and benefits for them, priced within their budget with the physicians and providers they try. Texoga's health care plan is available to small businesses with between two and 50 total employees, here at Headquartered in Texas, members of Texoga, and aligned to the Texas All-In-Answer Gas Industry. If your organization is not enrolled but looking for coverage, visit bcbstx.com/texoga. I'll say that again. Visit bcbstx.com/texoga to learn more. Visit today. Welcome back to Texoga Talks. We have with us as our special guest, economist extraordinaire, Dr. Dean Forman. Dean, I really enjoy these conversations because you really focus on the key data points that are important for policymakers to know, for consumers to know, about where we are in the marketplace, how the industry is responding. Today folks, we've been talking about the rapid growth and data center demand, what that means for natural gas demand in Texas, what implications that means for our power grid, our ERCOT power grid that delivers electricity to most of Texas. And we've been talking about infrastructure needs and Dean, you mentioned storage. One of the things that gets overlooked so often is the availability of natural gas and storage. And we know that the market has responded to this demand for infrastructure. You mentioned 45 billion cubic feet of capacity that's either being built or planned to be built, very real tangible projects. But the pipeline combined with storage growth doesn't, isn't, let me rephrase that, let me get my grammar right, I'll get in trouble from the teachers that often comment on my my lack of proper grammar here, but aren't these big factors and the priceless points that are being experienced by consumers today and folks as a disclaimer, all in gas association, we don't get involved in trade practices. But these are relevant economic factors about supply and demand. And just how big of a deal is it for consumers to have companies investing in infrastructure of a pipeline build out and the storage in order to make certain that the market is functioning properly in the price realm. Let's see, you've asked a lot of questions and one, let's take it apart a little bit. First going back to where we're talking about about this historically large pipeline expansion, out of the 45 roughly billion cubic feet per day of capacity, over 22 that's already under construction. That's per EIA's natural gas project Q data available on the website, they're a viable in real projects on the ground. And this meshes by the way with the jobs data that we've been monitoring and putting out press releases in recent months showing that this year we've had continued industry job gains and the top sector in there has been pipeline construction. So this is why it's contributing to the economy through jobs, through wages, through value added. And these are assets that are going to be long live. They're going to be around for decades and they'll support both the power side and the expansion of power as well as LNG exports. So that's how it's all coming together and we've got the resource base to supply it. Now you mentioned storage and market flexibility to go with this. And when we think commercially about building out natural gas, you think of the supply, you think of the ability to get it to where the transport to get it where you need to go with commercial certainty. You also think about the storage and we've continued to increase our storage capacity in Texas. That's also a record highs. So the ability to roll their production to move it around the state to export it if needed to really have that flexibility to balance the market depending upon seasonally where you've got demand domestically, internationally. And that flexibility has really been what's made the Texas system the most in the nation and able to grow. We're now, you know, the largest in growing. We've got the pipelines, the storage, the interconnections. We can absolutely keep pace with this record load growth. It's just a question of how we continue to build it out. And the risks are the things in the execution to build out to meet that ramp. I want to talk about those risks a little bit, Dean, because you're very bullish. You present a very strong picture of the capabilities of the all-en-gas industries ability to respond to this growth. You have additional LNG export capacity being built. We have tremendous amount of pipelines being built in Texas. We're going to be relying on the Feds to approve some of those because these are some interstate lines as well as entrust state lines. Obviously, we have storage that's coming to play there. But so you've made a really strong case about meeting this demand and this build up. But there's always the other side of the coin here, right? I mean, let's talk about those risks that could derail this growth story that you're painting out here today. Thanks, Todd. It really is the question of the hour. There are a few big risks. And to be clear, I'm optimistic on this build out. But let's hit three big ones. The first is infrastructure and the ability to execute it. So if pipeline construction or LNG facility construction slips did it permitting supply chain bottlenecks or financing challenges. The demand's not waiting. The demand's continuing to grow out. So LNG customers, data center operations, they'd look elsewhere if Texas doesn't execute on that. The next thing you touched on this with needing for approval is policy or regulatory risk. Now, it changes at the federal or the state level to slow those approvals, restrict delivery fuels, add new costs that would also blunt investment. So we've seen how permitting reform reforms can really make or break timelines. As we talked about 60% of the queue in Texas of natural gas pipelines is interstate. It's going to require some sort of FERC intervention or approval along the way again, pre-EIA's data. The third risk is really market congestion. So if we don't expand the takeaway capacity and we talked about West Texas in particular, could be East Texas and the Delta of the Haynesville as well. But that's got to keep in step with this demand growth. Otherwise, the National Gas Price basis, the difference between Henry Hub and these regional prices kind of blows out along the way. So just as a benchmark in recent data, if Henry Hub is recently around $3 per million B2, just north of that, in West Texas, we've seen discounts of and projected through this year of $2 per million B2 by futures markets. So that means if you're selling gas in West Texas, you're maybe netting a dollar per million B2, then you've got some other operational costs that go with that. That's not profitable. So as these pipelines are expected to build out over the next year or two, the basis differential futures markets starts to basically normalize to a cost of transport differential in two years. But it takes two years to get there. And it really is about building out the infrastructure and trying to keep up with it. Well, you mentioned three key ones, infrastructure delays, policy and regulatory risk, market congestion. These are all, I mean, this is why there are challenges in the marketplace. This is why businesses have to plan. This is not just easy to go out there and to overcome these things. These are real dilemmas. And so when we think about meeting this demand and responding, there are some significant hurdles. And I'm very thankful that we have some bright minds, some subject matter experts that are working 24/7 to resolve these. There's another one. You mentioned three. There's another one I'd like you to comment on, Dean. And that's global competition because I read where there are new discoveries, there's new investments. A lot of them are from US companies because there's global demand and there are resources all of the globe. Obviously, we are proud that Texas produces 43% of our nation's crude oil and almost 30% of the natural gas produced in America is from Texas. But let's talk about the speed bump of global competition and what impact that might be and where that competition is coming from. Yeah, there's, it is a great point in the sense that in the last eight to 10 years, we've gone from exporting minimal amounts of natural gas by LNG to now being the largest exporter of LNG in the world. And in that, we're competing with countries like Qatar, Australia and others that are expanding their capacity. So for data centers, power availability and cost will determine where those new builds go. They could go to North and Virginia or Pennsylvania or Ohio where you have some stranded natural gas or thing come to Texas where it's also cost effective. And as you build these things out, there's the ability to co-locate the generation to go with it. But we also have this flexibility to export the gas. And as we're growing that base load, it means that we've got to have the production trends and the infrastructure to support both these growing base load needs. We've got the resource advantage. There's no question about that. It's just about execution across the entire value chain. It's not about just having enough gas. It's really delivering it reliably and affordably and keeping those prices at levels that will continue and sonnify the investment across the value chain. Well, you know, you're right. It's not only about having those resources. It's about the ability to deliver that. And that's where policy comes in. And folks, if you're not following us at texoga.org, we hope that you will do that. We hope you'll be a part of our effort to inform and educate all Texans about the benefits of all the natural gas. And how important things like permitting reform is how important it is to have access to capital. I was able to visit with Alan Smith with Quantum Energy Partners just last week in David Klaus, two experts on private equity. And just they they told me, Dean, that access to capital really was a factor in building out some of the demand needs that we're trying to respond to hearing Texas and these companies. So I'm always I always think about Venezuela, you know, having the most reserves of any country in the world. And yet they rank a distant 20th or 25th in terms of production because they don't get the policy right. And I'm we're fortunate in Texas. We have leadership and citizens that value all in natural gas. They appreciate it funding a roads in our schools and our first responders are universities. And so that's important. Dean, let's focus for just a minute. We've talked we've talked about this in generic terms, but I'd kind of like to put a timeframe on this if you can for us. I want to just get just look ahead for the next decade. And let's kind of let's focus in if we're saying, okay, for the next 10 years, this is what Texans need to think about in terms of what does it look like for Texas natural gas? Was it look like for LNG exports in the data centers all growing so quickly? What is that your your 10-year window look line? Looks amazing. I mean, the next five to 10 years seriously could be a golden era for Texas energy and natural gas in particular. On the LNG side, the projects are already committed will nearly double US export capacity of LNG. Texas right at the epicenter of that. And long term think of it this way that this isn't speculative demand if you're underpinning these multi-billion dollar projects, you're bringing contracted demand from customers all around the world. So it's real, it's happening and it's building out. On the data center side, though, we're really just at the start of that growth that growth curve. AI cloud services, digital infrastructure is those things expand. We're going to see more of these large scale campuses concentrated around the major metro areas around Texas. That means power land, the business client has to compete to attract them and sustain them. And together, these markets represent now stable 24/7 demand that can support production and growth across the value chain, midstream investments and all the economic growth benefits that come with that. If we get it right, Texas isn't just going to meet the challenge. We're going to lead the world in showing how abundant cost effective energy can power up with the global economy and the digital future. Then you've given some terrific data points for us to think about today. I appreciate your time. You always dig in and and provide a lot and I know we're out of time, but real quickly, Dean, you produce regular economic insights for us to look at and you make that available to Texas All-in-Gas Association members. But we also post some of that data on a publicly facing website. Tell us about the name of your work and where it can be found. So depending on your interests, whether it's higher or lower level, we've got at the blow-by-blow all the detailed indicators every week in a Texas chart book that we do put out in a rears, but publicly, you know, new version each Monday to the public. We've got a monthly energy economics review that's also published first week each month that goes and fills in a lot of the full value chain statistics for Texas in a U.S. and global context. Oil, value chain, gas, value chain, we also look at power markets there. And then as we just came out with last week, we've got a quarterly energy economics review. This is a polished management level presentation that really frames the economy together with oil, gas, and power markets. And we look at the policy implications that come out of that. And that's reading the T-Lease on where we stand in the macro economy. So we really bring together the macro view with the microbillies. up for Texas and try to highlight all of the key points that we think are coming. Dean, it's some fantastic work. I look forward to looking at it every time you produce it. Folks, you can find it on our website, texoga.org, that's TXOGA.org. Dean, thanks so much for being with us today to talk about this very important issue that is essential to powering human life. Folks, we really want to provide these insights to you on texoga talks. We hope that you enjoy this conversation. If you do, please forward the link to your friends, your family, your colleagues because we need to make certain that Texans are responding to the challenge about information that's out there. It's not always exactly correct when it comes to meeting our power needs and our energy needs. Until next time, I've taught Staples. This has been Texoga Talks where energy meets inside. The views expressed on this podcast are not intended and should not be construed to be the views of any particular Texoga member or company. The purpose of this podcast is to engage in candid conversations about energy needs, energy security, and the future of energy.