“Wow, these guys are going to be in for a rude wakening about how much power is going to be available. . .” thought Joe Dominguez, CEO of Constellation Energy.
Dominguez was one of the attendees last May at a private, invitation-only gathering of energy and tech company CEOs held at Microsoft’s headquarters. The whole point was to talk about power.
Everyone already knew that AI was consuming a lot of electricity, and they assumed this demand would grow. A lot. But they didn’t realize by quite how much until OpenAI co-founder Sam Altman told the group that just a single AI model will require as much power as a large city.
Again, that’s just ONE model. And there are plenty of them out there– Google Gemini, OpenAI, Meta AI, etc. Every major tech company– not to mention plenty of startups– have developed or are developing power-hungry AI models.
In terms of energy demand and power consumption, AI will be the equivalent of adding several states to the US over the next few years. And America’s power grid simply doesn’t have the capacity.
Joe Dominguez understood that immediately… which is why his company teamed up with Microsoft to restart the Three Mile Island nuclear power station in Pennsylvania.
But one additional nuclear power plant is barely going to move the needle on America’s energy needs… and it takes way too much time to build new ones.
In fact, the most recent nuclear power facility to come online in the US took more than a decade to build. So even if the industry gets started today (which they won’t), and the permitting process were quick and easy (which it won’t be), nuclear power is still a long way out.
But there’s an easier option for the here and now: natural gas.
I’ve written about this before– US natural gas is absurdly cheap, especially compared to global prices. That’s because there’s just so damn much of it in the US… combined with the fact that natural gas is complicated to transport.
Oil is simple. Tanker ships crisscross the planet transporting crude from country to country, so the global price for oil is similar everywhere.
But it’s not that way with gas. Natural gas has to first be decontaminated of various impurities at the wellhead in order to be transported in ‘dry’ form through pipelines, then stored underground.
At the moment there is no trans-Atlantic pipeline allowing US natural gas to flow to Europe. And building one would take years if not decades.
That’s why there’s such a tremendous price difference in natural gas between the United States and Europe. The US produces oceans of it but hardly uses it, hence a cheap price. Europe barely produces any but consumes it voraciously, so the price is more than 4x higher.
If only there were a readily available way to transport natural gas across the Atlantic… then US producers would be able to export to Europe. Natural gas would be more like oil– a global commodity whose price is more or less the same around the world. And the US price would surge.
Well, there actually is a way to do that. Natural gas can be liquefied into a condensed form (about 1/600th of the gaseous volume) and transported at -163C.
Obviously, there’s a cost to liquefying and transporting gas. But a US producer can still make so much more money selling gas to Europe– even after the additional costs are included.
And this started to happen around 2017; US producers began liquefying their natural gas and exporting to Europe in major quantities. Within a few years, LNG exports were booming.
But then, earlier this year, Joe Biden bowed to the climate fanatics and ordered his Department of Energy to cease issuing permits for new LNG export terminals… essentially shutting down export growth.
It’s safe to expect a totally different policy starting in January, i.e. more US natural gas will flow to Europe. That means less supply in the US. Natural gas prices will rise as a result… and probably by a LOT.
But don’t forget about AI.
Let’s first think about different ways to generate electricity and the types of fuels that are available.
There’s solar and wind, for example. The prices of solar panels in particular… and wind turbines to a degree, are both falling. In large part this is because the Chinese Communist Party heavily subsidizes its domestic solar panel industry.
So, wind and solar are somewhat price competitive. But they carry a security risk: do you really want China manufacturing your entire power grid? Is it possible they built a kill switch in their software?
More importantly, they’re not terribly reliable. There are times (like night!) when the sun doesn’t shine. Germany (which generates nearly 60% of its power from renewable energy) recently experienced yet another dunkelflaute, i.e. a foggy, doldrum period in which there is neither sunshine nor wind.
This doesn’t work for AI. Tech companies need reliability.
Then there’s coal… which is super reliable, not to mention cheap and efficient. But it’s one of the dirtiest fuels known to man. Google won’t get its hands dirty with that one.
Tech companies love nuclear. They understand it is, by far, the most efficient form of energy known to man. But again, new reactors are 10+ years away. AI needs power now.
And that pretty much leaves natural gas. The US has oceans of it and barely uses a fraction of its supply. It’s absurdly cheap. In fact, according to the US National Renewable Energy Laboratory, natural gas is THE cheapest fuel source per MW of electrical capacity.
It’s the cleanest of all the conventional sources. Plus, you can construct a new facility in about two years… so new power can come online quickly. And the Big Tech companies have demonstrated that they are more than willing to shell out the cash needed to finance natural gas power plants.
Between these two trends: AI power demand, and the upcoming export boom, natural gas prices are probably going to soar.
We’ve just watched the Dow Jones Industrial Average rise by 7% to an all-time high in the last week. Bitcoin has surged by more than 30% to its all-time high.
That’s nothing compared to what we could see in the natural gas price.
It’s obviously not going to happen in a week, these trends will take longer to unfold. But it’s definitely a good time to look at some of the extremely undervalued natural gas producers whose profits will boom.
