How AI Energy Demand in 2025 Will Put Natural Gas in the Spotlight

As the year draws to a close, natural gas (NG=F) prices are on track to finish in negative territory, reflecting a dip of 13% year to date due to milder winters and an oversupply in the market. However, industry experts are optimistic about the future, particularly in 2025, as demand is expected to spike due to both exports and the rising energy requirements associated with artificial intelligence (AI) technologies.

Natural Gas: The Fuel of the Future

During a recent energy outlook roundtable, Francisco Blanch, head of Bank of America’s global commodities and derivatives research, expressed a bullish sentiment about power markets. “We’re constructive on power, and because we’re constructive on power, we think natural gas is going to perform well,” he noted. This optimism stems largely from predicted increases in gas exports and heightened power demand driven by the expanding number of manufacturing facilities and AI data centers that need to operate continuously. “These … centers have to run 24/7,” Blanch said, emphasizing the pressing need for a stable energy supply.

The power demand for data centers is projected to grow between 10% and 15% per year through 2030, which could account for as much as 5% of total worldwide power demand in that timeframe. According to Dennis Kissler, senior vice president at BOK Financial, “Natural gas will allow the infrastructure to be built and let it power the generation plants to make electricity.”

Shifting Dynamics in Energy Consumption

The increasing reliance on natural gas is evidenced by recent statements from Scott Strazik, CEO of GE Vernova, a company specializing in energy equipment. He pointed out that approximately 40% to 45% of electricity in the U.S. is currently generated from natural gas. “We’re about to go into a real load cycle,” he stated, predicting a significant shift in global reliance on gas as nations like the U.S. transition from coal-based energy to cleaner natural gas sources.

The Regulatory Landscape and Its Impact

The anticipated erosion of regulatory barriers under the new administration is expected to enhance the prospects for the natural gas industry. Analysts forecast that the government may eliminate restrictions on liquefied natural gas (LNG) export permits and pipeline projects, potentially increasing profitability. Philip Rossetti, a resident senior fellow at the right-leaning R Street Institute, observed, “Regulations act as an added cost. If you’re expecting less regulation you’re probably going to be expecting more profitability.”

This sentiment is reflected in the performance of major companies in the sector, such as the Williams Companies (WMB) and Oneok (OKE), both of which have seen their stocks rise over 40% year to date. U.S. LNG exports are also projected to rise by 15% next year, largely fueled by Europe’s efforts to build storage capacity and reduce dependence on Russian gas amid ongoing geopolitical tensions.

Price Predictions and Market Dynamics

According to S&P Global Commodity Insights, natural gas prices at the Henry Hub, the main delivery point for futures contracts, are expected to average over $4.00 per million metric British thermal units (MMBtu) by 2025. This anticipated increase follows two years of pricing below $3.00/MMBtu. The organization notes, “The uptick in exports will put significant strain on the domestic U.S. natural gas market.”

However, not all analysts are convinced that prices will move upward swiftly. Some Wall Street experts caution that the impact of policy changes around exports, coupled with delays in LNG supply projects, may slow significant price increases. For instance, analysts at Goldman Sachs now predict that natural gas prices could reach $4/MMBtu by 2026, deferring their previous timeline of the fourth quarter of 2025.

Conclusion

As we approach the mid-2020s, the natural gas market appears poised for growth, driven by robust demand from energy-intensive industries, particularly those related to AI technologies. While current price fluctuations may paint a bleak picture in the short term, the shifting regulatory environment and significant increases in both exports and domestic consumption indicate that natural gas could solidify its status as “the fuel of the future.”