Energy Transfer’s (ET) recent announcement to supply gas to an AI data center in Texas is just the first of many, ET executives say.
Energy Transfer executives are seeing a deluge of AI-related projects flooding in, with more than 70 prospective data centers in 12 states requesting service, co-CEO Tom Long said during the midstream company’s fourth-quarter earnings call Feb. 11.
More than 60 power plants the company does not serve have requested connections, and another 15 power plants already connected to Energy Transfer’s natural gas lines have requested additional couplings.
“We're learning a lot about data centers. Data centers are learning a lot about the natural gas business, and how critical it is to what they're doing,” said Mackie McCrea, ET co-CEO.
The day before the call, Energy Transfer announced a long-term agreement to supply gas to CloudBurst Data Centers for an AI project in Central Texas, between San Antonio and Austin. The deal to provide up to 450 MMcf/d of natural gas directly to a data center campus is the company’s first such arrangement.
Energy Transfer and other midstream companies are going through an educational process as the AI sector’s promised growth starts to turn into brick-and-mortar facilities.
“One thing we’ve learned is there’re five critical things for a data center, and the most important one is energy,” McCrea said.
While other factors come into play, data center locations need a robust supply of energy, accessible land, plenty of water for cooling, access to high bandwidth and a secure location.
“There's not 1,000 places in the U.S. or certainly in Texas that fit all those variables,” McCrea said.
Electric supply is critical enough that most centers will provide more than one back-up power source to their primary source.
In addition to the on-site power generation, the CloudBurst facility will have a connection to Texas utility grid ERCOT, as well as backup diesel generators, which are further backed up by batteries. Natural gas storage will also be available on site, in case the piped-in gas supply is temporarily shut down.
CloudBurst identified the San Marcos site as the company’s flagship facility, serving primarily AI/hyperdimensional computing. The onsite generation will be developed in phases, eventually up to 1.2 gigawatts of power.
ET executives did not announce its next data center support project but did discuss the recent federally supported Stargate AI program. President Donald Trump announced the project, billed as creating the world’s largest AI data center infrastructure, the day after his election.
The first Stargate campus is to be built in Abilene, Texas, a city between the Dallas-Fort Worth metro area and the Permian Basin.
Abilene is already close to several of ET’s natural gas pipelines, and the company announced the final investment decision for the Hugh Brinson pipeline in early December. The natural gas pipeline, with a capacity of 1.5 Bcf/d, will follow a route that takes it close to Abilene.
East Daley Analytics forecast on Feb. 11 that Energy Transfer was one of several midstream companies that would play a role in supplying the future data center campus. McCrea said that ET was interested in Stargate, and the company is working on a potential deal, along with other AI projects.
“It's almost as if Energy Transfer was working years ago to figure out where the best spots are for these data centers, because, if you look at them, the vast majority of them are within several miles of our pipeline,” McCrae said. “We feel extremely fortunate.”
Fourth quarter earnings
For the 2024 earnings meeting, Energy Transfer highlighted its adjusted EBITDA of $15.5 billion for 2024, which was at the high end of its original forecast and was a 13% increase over 2023. The number was a record for ET, which also recorded record volumes over its NGL and crude segments for 2024.
Executives announced they had approved $5 billion in capex and were moving forward with construction of the Mustang Draw processing plant in the Midland Basin. The company plans to focus on Permian Basin investments, NGL infrastructure and other natural gas projects.