Energy usage at data centers is already immense, and it will be even higher in the future because AI requires a tremendous amount of computing power. That's fueling the need for more electricity in the country to power AI data centers.
Chevron (CVX 6.53%) sees the country's growing power needs as a huge opportunity. It's planning to profit from the power surge by building gas-fired power plants to support AI data centers. That will enable the energy giant to maximize the value of more of the natural gas it produces.
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Key Data Points
The power surge
AI is a power-hungry technology, and a single query using an AI chatbot like ChatGPT can require 10 times the energy of a simple search using Alphabet's Google. On average, AI data centers require 50 times more power per square foot than a typical office building.
As AI becomes more ubiquitous in society, the world will need a lot more electricity. According to an estimate from IHS, power demand in the U.S. alone will surge 55% over the next 20 years. That's a sixfold increase in the power demand growth rate compared with the last two decades.
This unprecedented power surge will require all forms of electricity. The country will need to build out a staggering amount of new renewable energy capacity to help keep climate-change concerns at bay. However, renewable energy can't provide all of AI's power needs, in part because of its intermittency issues. That's opening the door for natural gas to fill in the gap. Forecasters anticipate that U.S. natural gas demand will grow by 20-28 billion cubic feet per day (Bcf/d) by 2030 from last year's level of 110 Bcf/d, fueled in part by rising demand from AI data centers.
Cashing in on the gas-fired power boom
Since Chevron produces a lot of natural gas, its production business should benefit from the coming power surge. However, that hasn't stopped the integrated energy company from seeking other opportunities to profit from the surge.
Earlier this year, Chevron unveiled plans to work with investment firm Engine No. 1 to develop scalable and reliable power solutions for U.S. data centers to run on natural gas. The companies are working with leading gas turbine maker GE Vernova to build power foundries that can produce significant quantities of reliable power to meet the needs of AI data centers. Chevron has an ambitious plan to develop up to 4 gigawatts of power-generating capacity in the future, which is enough to meet the energy needs of up to 3.5 million U.S. homes. The company aims to have the initial plants online by the end of 2027.
Chevron has already made tremendous progress on its plan to profit from AI power demand. According to a recent report from Reuters, the company has started the permitting and engineering phases for several sites where it could supply power to co-located data centers.
"The customer interest is high," said Daniel Droog, vice president of power solutions at Chevron, at a recent industry conference. The company believes it could develop sites with around 1 GW of capacity by 2027 or 2028.
This strategy would enable Chevron to generate steady earnings by producing power directly for data centers. That would help offset some of the volatility in gas prices and provide a stable market for its gas. On top of that, Chevron is also looking at opportunities to utilize carbon capture and storage at these sites to reduce carbon emissions. It could also build some renewable-energy capacity to help lower the emissions profile of these facilities.
A potentially powerful new growth driver
Chevron is seeking to cash in on the AI power boom by building power plants to support the energy needs of these facilities. It's already making progress with this plan, which could see it start producing power within the next three years. That would add a stable and growing source of earnings for the energy giant in the coming decade.
