INTERVIEW: TC Energy, data center operators advancing talks for US pipeline contracts

North American energy company TC Energy could be as close as a few financial quarters away from closing deals providing for natural gas transportation to fuel on-site power generation at data center facilities, the company's US gas pipeline chief told S&P Global Commodity Insights.

Stan Chapman, TC Energy chief operating officer, natural gas pipelines, said talks with counterparties in the technology sector are active and in various stages, and contracts can be expected to come sooner rather than later.

"I don't know if sooner is one quarter away, two quarters away, but it's not two or three years away," Chapman told Commodity Insights Sept. 19 after appearing on stage at the Gastech conference in Houston.

"Early on, we thought a lot of this AI power demand was going to be behind the utilities. What we're finding out now is that due to the regulatory delay in getting that physical infrastructure in play ... we're getting a lot more inquiries about tapping into our mainline, building a lateral to a data center and having some sort of on-site generation there," he said.

Chapman did not identify prospective counterparties, and said the structure of contracting is still being worked out.

Pipeline companies expect to be among the beneficiaries where data center growth drives power demand upward. Operators foresee growth opportunities in connecting their networks directly to data center facilities and in supporting the incumbent system with more transportation capacity to local distribution companies.

"We're not starting from zero in terms of serving data center load today," Chapman said. "A portion of the power generation growth that we've already had is likely going to serving data centers already."

Chapman alluded to an estimate that 80% of some 2,500 data centers active in the US are in Virginia, where TC Energy operates the Columbia Gas Transmission. The system is composed of nearly 12,000 miles of pipeline and spans 10 states.

TC Energy already has direct connectivity with a small data center, which is tied into one of its mainline pipes via a lateral line. The pipeline operator expects additional commercial agreements will allow it to supply fuel for both primary and backup generation at data centers.

Demand growth

Projections of data center growth and its effects on power demand have varied widely. Commodity Insights' May 2024 Planning Case projects incremental data center electricity demand will be around 200 TWh by 2030. In 2024, incremental demand from data centers and other large loads in the US Lower 48 region is estimated at around 25 TWh.

Sources of uncertainty related to data centers' effects on grid-based electricity demand include the commercial prospects for artificial intelligence technologies, the availability of skilled labor to support their expansion, the adequacy of supply chains for data center hardware, and the extent to which facilities rely upon on-site generation, according to Commodity Insights energy research analysts.

"Unsurprisingly, utilities are among the most bullish on datacenter-driven electricity demand," the analysts wrote in a Sept. 6 report. "However, skepticism is warranted, as for decades, utilities and grid operators have repeatedly, consistently and significantly over-forecast load."