Amid strong North American electricity demand growth, gas remains key to the generating mix as a source of stable, reliable, dispatchable power. With gas often providing the marginal unit of electricity to meet demand, gas supply, demand and ultimately pricing have a significant bearing on power prices — but are themselves dependent on a complex web of factors.

In a recent webinar, our expert analysts used data from Wood Mackenzie Lens Gas & LNG and Lens Power & Renewables platforms to highlight just how interconnected North American gas and power markets are. Fill out the form to access a selection of key slides from the presentation, or read on for an insight into how trends in gas and liquefied natural gas (LNG) have important implications for the power sector.

Data centres are driving US electricity demand growth
Hyperscale tech firms including Google, Meta and Microsoft are investing billions of dollars in AI data centres in the US, which create massive demand for electricity. Wood Mackenzie is tracking over 900 gigawatts (GW) of data centre projects, with 220 GW of those being highly likely to go ahead.

While data centres are quantified by their electricity use, the cost of power used by a data centre over a lifespan of 30 years is only around 5-13% of total capex and operating costs. The price of the electricity they use is therefore not a decisive factor in the choice of generation as speed-to-market to produce electricity is most often prioritized.

Gas is ready to deliver dispatchable grid-scale generation
While renewable energy is increasingly being combined with energy storage, currently, gas is the predominant generating source able to keep US grids running 24/7, 365 days a year.

Many hyperscalers claim to be emission free across their data centre usage, but this is usually achieved through offsets and renewable energy credits. In reality, many are relying on gas generation –  and are unlikely to give up market share or their position in the AI race in the short term to meet climate goals. Gas is also preferred for behind-the-meter generation as it provides dispatchable power and bypasses grid connection constraints.

Pipelines link US gas markets to Canada and Mexico
Gas pipelines create an integrated system from Mexico to Canada. Mexico’s appetite for US gas is surging thanks to a combination of power demand growth and demand for feedgas for new LNG export capacity.

In contrast, Canada tends to be a dependable supplier of gas to the US when severe weather drives up heating and electricity demand. However, once British Columbia’s LNG export facilities become fully operational, demand for Canadian gas will pull in two different directions –  with clear implications for prices.

LNG exports link North American gas to global markets
The growth of the LNG sector in North America creates an inextricable link between domestic power markets and energy markets globally. Lost supply in the global LNG market creates a demand pull on North American LNG, which in turn increases demand for natural gas as a feedstock, pushing up prices.

We estimate 13-14 million tonnes of LNG supply is currently unavailable because of the Middle East conflict - and damage to production facilities means some of that may take up to five years to return to the market. At the same time, heightened risk to Gulf LNG may see buyers turning to North American markets to diversify their supply chains.

Conversely, some countries may choose to diversify away from LNG as a result of the Middle East conflict; the Philippines have already shifted back towards coal, while Vietnam is turning towards renewables. This could lead to permanent global demand destruction, creating downward pressure on prices for gas and ultimately impacting gas demand in the long term.

Source: Wood Mackenzie