Williams Companies CEO says US will fall behind in AI race without natural gas

The CEO of America's largest pipeline operator told CNBC that the country will fall behind in the race to develop artificial intelligence if it doesn't turn to natural gas to meet surging electricity demand from data centers.

“Natural gas is the only way we can meet the demand for electricity and the electrification that's already underway.” Williams Companies “If we deny ourselves, we will fall behind in the AI ​​race,” CEO Alun Armstrong said in an interview on Thursday.

Williams Companies handles approximately one-third of the U.S.'s natural gas through a pipeline network that spans more than 30,000 miles. Williams' network includes 10,000 miles of transcontinental pipelines (Transcos), a vital artery serving virtually the entire East Coast, including Virginia, the world's largest data center hub, and fast-growing Southeast markets such as Georgia.

A recent report from energy consulting firm Rystad projects that the tech sector's expansion of data centers to support AI and the adoption of electric vehicles will increase electricity demand in the United States by 290 terawatt-hours by the end of the decade — enough to meet the entire electricity demand of Turkey, the world's 18th-largest economy.

Executives at the nation's largest utilities have warned that not meeting surging electricity demand could jeopardize not only the artificial intelligence revolution but also economic growth across the U.S. The role of natural gas in meeting that demand is a contentious one as the U.S. simultaneously transitions to a clean-energy economy through the rapid expansion of renewable energy.

Renewable energy CEOs believe solar, wind and battery storage will become the preferred energy sources for data centers as the tech industry aims to meet ambitious climate targets. Dominion Energy and Southern CompanyUtilities that power Virginia's data center hub and the fast-growing Atlanta market say natural gas and nuclear power need to act as backups to renewables when the weather isn't the best.

“We're going to hit a wall pretty quickly in terms of not having enough power on the AI ​​side to do what we want to do,” Armstrong said.

“I see this as a huge national security issue,” the CEO said. “We have to get our act together, or we're not going to be the force we need to be in AI.”

Armstrong said some of the largest independent data center developers, who build infrastructure to house other companies' servers, have approached Williams about getting natural gas directly from the company's pipelines.

“Groups that want to make their brands green are coming to us and saying, 'We have to work with you. We've run out of alternatives. We can't meet our customers' needs without using natural gas,'” Armstrong said, declining to give his name.

Armstrong said Williams expects demand for natural gas to grow 18% from 2023 to the end of the decade across all consumption sources, including power generation and liquefied natural gas. The company's pipeline capacity is currently sold out, including its key Transco pipelines.

“Our own production capacity is completely stretched,” Armstrong said, “so the best we can do to supply gasoline is beg, borrow or steal from other people's production capacity.”

Williams is expanding Transco's capacity by 3.1 billion cubic feet per day, which represents a 15% increase in long-term contract capacity coming online over the next few years, Armstrong said on the company's first-quarter earnings conference call.

The CEO said the U.S. has underinvested in natural gas capacity, and while demand has increased 56 percent since 2005, interstate capacity has grown 26 percent and storage has expanded 4 percent over the same period.

Goldman Sachs estimated in an April report that $7.4 billion in pipeline investments are needed to meet growing demand for demand centers through 2030, and Williams and Kinder Morgan are in the position to benefit the most.

Williams' shares have repeatedly hit new 52-week highs in recent days, and the stock has risen 17% in the past three months and 26% since the beginning of the year. Research firm Argus recently upgraded Williams to a buy rating, arguing that the company should benefit from rising natural gas consumption because of its pipeline network that connects it to major demand centers.

“We feel like we have a tremendous competitive advantage,” Armstrong told CNBC. “In the densely populated areas that we serve, like Virginia, Maryland, Washington, D.C., North Carolina, […] They want to locate their data centres there because of the good access to communication systems, including the transatlantic fibre optic system.”