Data centers are dragging Big Oil into the power business

As the AI boom has accelerated, Big Tech companies have talked a big game about sourcing power from low-carbon sources like renewables, geothermal, and advanced nuclear; the latest deal announced by Google this week aims to invest $20 billion in renewables for data centers by 2030. But the reality is that much of the data boom will be powered by gas, either on-site or through the grid. Tech companies are under immense competitive pressure to scale their AI operations as quickly as possible, and their bets on clean power won’t deliver as fast as they need.

“New data center-driven demand will increase the near-term outlook for gas-fired electricity generation, as technology companies appear to be prioritizing speed over near-term environmental goals,” said Ben Levitt, associate director of analysis for S&P Global Commodity Insights.

Gas turbines are the most readily available option for the necessary amount of reliable on-site power. That means bumper business for the companies that make them: Scott Strazik, CEO of the energy hardware manufacturer GE Vernova, said this week that data centers have become a core customer for the company’s booming gas turbine sales. Now, Exxon is pointing to a middle path. Gas with carbon capture could be a way to scale up the data center power supply quickly, with a more moderate carbon footprint.

Exxon’s carbon capture aspirations are nothing new, and form an anchoring part of its plan to invest $30 billion in low-carbon tech between 2025 and 2030. Already, Woods said, Exxon has more carbon capture projects under contract than any other company in the world. But taking that one step further, with bespoke power plants, is new. Over the last several years, European oil majors tried dabbling in the clean power business. But while some engineering skills are transferable from fossil fuels to renewables, profits tend to be much skimpier, and after being chastened by their shareholders, BP and Shell beat a hasty retreat that continued this week when BP’s CEO laid out a plan to “significantly reduce” its renewables investment.

But there are some key differences between the Europeans’ misadventures and what Exxon and Chevron are proposing. First, the American oil giants are still dealing fundamentally with fossil fuels, not the relatively foreign territory of renewables. The companies are essentially just adding a new link in a vertically integrated product chain: Putting an Exxon-designed power plant at the end of an Exxon-managed gas distribution network that originates at an Exxon drilling field, with captured carbon deposited at Exxon’s storage sites.

Exxon’s strategy document is clear that a key part of the carbon value proposition for tech companies isn’t just the CCS technology, but the fact that the gas itself will come from Exxon fields that, the company says, are operated in a lower-carbon way than its competitors. Finally, these projects will be “behind the meter” — that is, plugged directly into the data center using them instead of being routed through an electric utility — and are therefore divorced from the problems with grid connection delays and power market swings that can turn the electricity business into such a headache.

“The premium that low-carbon, reliable power is getting from data centers makes this a strong business case,” said Graham Bain, an analyst at the energy intelligence firm Enverus.

Behind-the-meter power generation will only be a small piece of the data center solution, Bain said. Most data centers will still be grid-connected, meaning their relative carbon footprint remains primarily a challenge for utility companies to solve, not a company like Exxon. By 2030, Bain said, on-site systems for data centers like what Exxon is proposing will add only about 1% to average daily US gas consumption.

Still, many environmental groups challenge the basic premise that carbon capture technology can work, or that it’s a more cost-effective investment in decarbonization than non-fossil alternatives. For Exxon’s pitch to succeed, it will need to convince tech companies that the climate benefit is real.

Setting aside the carbon footprint issue, a gas grab by data centers will put further pressure on a market that is already tightening. S&P Global forecast this week that the increase in LNG exports expected under the Trump administration will push up domestic gas prices in the US next year by at least 30%.

British regulators this week approved what officials described as the country’s first commercially viable carbon capture and storage facility: A consortium led by BP won the contract and will apparently be running the facility within four years — if it is delivered on time, which such facilities have so far struggled to be.