West Texas wants to sell its natural gas to AI data centers, but has few options for transporting it

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ODESSA — Big data centers that power the artificial intelligence industry demand an abundance of energy.

West Texas — known for producing 40% of the nation’s crude oil — also has an extraordinary amount of natural gas that could power those data centers. But the region lacks adequate infrastructure to convert the gas, a byproduct of pumping oil, into electricity and transmit it to the growing industry, experts said.

“Meeting this unprecedented demand takes more than production alone,” said Ed Longanecker, president of the Texas Independent Producers and Royalty Owners Association, a trade group. “It requires a strong network of pipelines and infrastructure to move natural gas efficiently and ensure reliable power for end users. In Texas, expanding this network has never been more important to keep pace with growth.”

The lack of infrastructure puts the Permian Basin region at a major disadvantage compared to other oil and gas producing regions, said Jason Jennaro, CEO of FrontierGen, a business analytics company that helps industrial developers secure land.

Oil and gas companies in West Texas will need to compete with those in the Eagle Ford and Haynesville shales, two other major oil basins in southern and eastern Texas, for customers on the hunt for remarkable amounts of natural gas.

Further complicating the matter is the number of companies with high energy needs, including cryptocurrency facilities, Jennaro said, who authored a report in September, evaluating different Texas oil basins and their potential to bring energy to AI. The oil and gas industry itself is also increasingly needing more energy.

“The demand for generation, particularly in high voltage transmission, is going to have to be spread across a number of different industries looking to pursue it,” Jennaro said.

Jennaro said the United States will need to add roughly 400 terawatts in five years to satisfy AI demand. His study relied on estimates from McKinsey and the Energy Information Administration, a government analysis agency.

Texas is also expecting more demand. The Electric Reliability Council of Texas, the state’s main grid operator, may have to nearly double in size by 2030, according to its own forecasts. The demand is mostly coming from data centers and the oil and gas industry.

The dearth of ways to carry gas that surfaces along with crude oil in the Permian Basin is not just lost revenue; it’s a money pit. Earlier this year, oil companies were paying other companies to take the gas. Supplying that gas to data center companies would mean West Texas producers could turn the financial drain into profit.

Among the first steps to realizing that goal, the region needs gas plants to generate electricity. Longanecker said oil companies are spending billions of dollars in West Texas for such projects.

But it won’t be so simple as building facilities. More pipelines are also needed. The pipelines carrying 6.5 billion cubic feet a day of natural gas in the region can only transport so much of it to meet the congested field of customers.

The oil fields of Eagle Ford and Haynesville, on the other hand, are better equipped with transmission lines, less congestion of industries and proximity to liquefied natural gas hubs. The two also have a more robust fiber optic network.

Longanecker said that the federal government should reform pipeline permitting to shorten the approval process, which can take up to seven years.

Jennaro said he’s bullish about a state plan in Texas to build transmission lines capable of transmitting higher voltages of electricity. The Permian Basin Reliability Plan, passed by lawmakers in 2023, is set to be built by 2030.

“In our opinion, we are entering America’s Fourth Industrial Revolution. This revolution will be defined by the creation of large industrial nexus points where substantial amounts of electricity, transmission, natural gas, water, and fiber optics converge,” Jennaro said. “Texas and its energy basins are a great place for this.”

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