Will AI Drive A Nuclear Renaissance, Or A Natural Gas Boom?

Nov 01, 2024

MIDDLETOWN, PENNSYLVANIA - OCTOBER 10: in this aerial view, the shuttered Three Mile Island nuclear ... [+] power plant stands in the middle of the Susquehanna River on October 10, 2024 near Middletown, Pennsylvania. The plant’s owner, Constellation Energy, plans to spend $1.6 billion to refurbish the reactor that it closed five years ago and restart it by 2028 after Microsoft recently agreed to buy as much electricity as the plant can produce for the next 20 years to power its growing fleet of data centers. (Photo by Chip Somodevilla/Getty Images)

The energy media has been filled in recent months with stories about the prospects for AI and other new technological advances to drive either a renaissance in nuclear power generation or a boom in demand for natural gas and gas-fired power plants. Two great examples came this week when the Wall Street Journal ran a major piece predicting a big tech-fueled rapid nuclear expansion one day after Bloomberg ran a story predicting natural gas would be a major beneficiary of the tech-driven energy demand.

So, which is it going to be: A nuclear renaissance, or a new gas boom? The answer seems likely to be some combination of both.

Bloomberg’s report plays off comments delivered to investors during this week’s earnings rollout by BP CEO Murray Auchincloss, who says natural gas stands to be a major player in the efforts by tech firms to secure reliable, 24/7 power generation to fuel the massive data centers being installed in many regions of the US.

Although BP’s stock price dropped by 3% in the wake of its lowest quarterly earnings since 2020, Auchincloss believes the company’s strong position in natural gas will become a major factor in turning things around. He also emphasized BP’s ability to combine gas generation with renewables as an attractive option for tech firms to meet net-zero commitments while securing the continuous energy streams needed by their data centers.

An Amazon Web Services data center under construction on Quail Ridge Ln in Stone Ridge, Virginia, ... [+] US, on Wednesday, March 27, 2024. Amazon.com Inc. plans to spend almost $150 billion in the coming 15 years on data centers, giving the cloud-computing giant the firepower to handle an expected explosion in demand for artificial intelligence applications and other digital services. Photographer: Nathan Howard/Bloomberg

“Hyperscalers are driving crazy demand into natural gas right now,” Auchincloss said during Tuesday’s call. “I’m pretty optimistic on natural gas prices through the decade.”

Opponents of fossil fuels are not thrilled with this development. The Seattle Times reported in September about the Sierra Club’s concerns that U.S. power companies “announced plans to build more gas power capacity across the U.S. than they did in all of 2020” during the first six months of 2024. The Sierra Club notes that a similar pace of new announcements for the 2nd half of the year would make 2024 the fastest-growing year for natural gas power generation since at least 2017, the first year the organization began tracking such data.

Despite the concerns from opponents, a boom in natural gas generation seems destined to come, at least in the near term. Among other advantages compared to nuclear generation, combined cycle natural gas plants face lower permitting hurdles, are faster to build, and less costly to finance than traditional nuclear plants.

The other obvious advantage is in the far shorter timelines gas plants require to be up and running. Permitting alone for a large-scale nuclear plant can take up to 15 years or longer to complete, while a full concept-to-first-generation timeline for a new large-scale natural gas plant can take less than half that time, just 5 to 7 years in many states.

Those and other factors help explain why the Wall Street Journal story focuses on the fact that small modular reactors (SMRs) have become a focal strategic objective of some tech firms seeking zero-carbon solutions which also provide a high degree of energy security.

SMRs have loomed as the theoretical wave of the future in nuclear power generation for several years now, and some demonstration projects are developing that may provide breakthroughs in the next few years. One such project, called NExT Lab, could begin generating power in 2025. NExT Lab is a molten salt reactor project located on the campus of Abilene Christian University in Abilene, Texas. It is a joint project involving The University of Texas, Texas A&M University, and the Georgia Institute of Technology.

CHANGJIANG, CHINA - AUGUST 10: Aerial view of the core module of China's Linglong One, the world's ... [+] first commercial small modular reactor (SMR), installed on August 10, 2023 in Changjiang Li Autonomous County, Hainan Province of China. Linglong One, which is self-developed by the China National Nuclear Corporation, was installed successfully in Hainan on August 10. (Photo by Luo Yunfei/China News Service/VCG via Getty Images)

These smaller units would have a big advantage over large-scale wind and solar developments in that they can be sited in the middle of major cities and other power demand centers instead of hundreds of miles away where wind and sunlight conditions are more ideal. They thus have the potential to save billions of dollars in future costs related to the buildout and maintenance of thousands of miles of new transmission lines.

The Wall Street Journal notes an array of tech companies like Alphabet, Amazon, and Oracle have announced capital support for SMR projects, but also points out they aren’t expected to come online until well into the 2030s. In the meantime, other tech firms have entered into agreements with power providers to reactivate dormant traditional nuclear plants. One recent example is Microsoft, which reached a deal with Constellation Energy to reactivate Unit 1 of its Three Mile Island plant near Harrisburg, PA, as soon as 2028 pending approval from the Nuclear Regulatory Commission.

At the same time this race to power fast-developing AI growth and other data center needs is happening, the various US regional power grids are in the midst of a mass retirement of a vast swath of the country’s fleet of coal-fired plants and older generation gas plants. These factors all combine to put great stress on the ability of the grids to meet the needs of these tech companies, thus incentivizing many of them to source their own generation from alternative sources.

The Wall Street Journal quotes an analyst at Wood MacKenzie noting that these tech firms are “probably among a select group of companies that can afford to pay a premium for nuclear power.” That’s a reality that seems likely to hasten the development of a new generation of nuclear power facilities. But it also helps create financial conditions for a near-term boom in new natural gas generation to power the brave new AI world of the future.

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