Electricity generation costs—specifically electric supply—remain tightly linked to natural gas prices. For large energy consumers such as data centers, manufacturers, healthcare systems, medical campuses, financial institutions, and Real Estate Portfolios, this relationship is becoming an increasingly critical driver of short-term cost volatility and operational risk due to the persistently tight natural gas Supply-Demand equation.
Natural Gas Demand Increase – Wreaking Havoc on Supply-Demand Balance
As coal and nuclear plants have retired, the U.S. generation fleet has been largely replaced with natural gas–fired resources. These plants came online faster than alternative fuel sources due to favorable regulatory conditions, lower upfront capital costs, and speed to market. The result: a power system that is highly efficient—but also highly exposed to natural gas market dynamics.
At the same time, electricity demand and Liquified Natural Gas (“LNG”) exports are accelerating, fueling the demand side of the natural gas fundamentals equation. From 2023 levels, U.S. electricity consumption is projected to grow by approximately 25% by 2030, driven by data centers, AI workloads, electrification, and expansion across healthcare and commercial real estate portfolios. At the same time, LNG exports potentially may double between 2025 and 2029, adding almost an additional 14 Billion cubic feet per day (Bcf/d).
AI Leveraged Natural Gas Supply – Fueling The Already Persistent Tight Supply-Demand Balance
The tight supply–demand balance that emerged in 2022—combined with rapid advances in artificial intelligence—has accelerated a structural shift that has been discussed at ECM for years: natural gas producers now have greater ability to actively manage supply and maintain a tight supply-demand balance.
Producers have always had physical levers available:
- Undrilled wells
- Drilled but uncompleted wells (DUCs)
- Shut-in production
Historically, shut-ins were used sparingly, primarily for maintenance or during extended periods of uneconomic pricing, due to the risk of degrading well performance.
What has changed is precision added to a tightening supply-demand balance. AI-enabled analytics, forecasting, and real-time optimization now allow producers to modulate output more effectively—using physical supply control rather than relying primarily on financial hedging strategies.
For large electricity consumers, this represents increased short-term price volatility that needs to be managed.
Direct Impacts on Electricity Prices and Procurement Risk
Most natural gas–fired power plants purchase fuel at or near cash (midpoint) pricing, leaving generation—and ultimately end users—exposed to short-term gas price fluctuations.
As natural gas producers gain more flexibility to manage supply in response to market conditions, the likelihood of short-term price spikes also increases—especially during peak demand periods with unfavorable weather conditions.
Compounding this exposure is a persistent infrastructure challenge: pipeline constraints. Even when sufficient gas exists at the wellhead, limited pipeline capacity can restrict delivery into key load pockets, driving higher delivered gas prices and, in turn, higher electricity prices.
For data centers, manufacturers, hospitals, financial institutions, and large real estate portfolios, this risk shows up directly in:
- Power budgets
- P&L volatility
- Reliability planning
- Capital planning for growth
Implications & Considerations for Large Energy Consumers
For organizations managing large, mission-critical energy loads:
- Budgeting risk is rising: Traditional forecasts may understate volatility and peak exposure.
- Procurement strategy matters more: Timing, structure, and market access can materially impact cost.
- Market intelligence is essential: Understanding ISO-level dynamics, fuel-price interactions, and congestion risk is now a strategic requirement.
- Flexibility creates advantage: Organizations with adaptable procurement and risk-management strategies are better positioned to absorb volatility and support growth.
About the Author
Matthew Morcheid is an energy market professional with deep expertise in wholesale electricity and natural gas market dynamics. His work focuses on the intersection of fuel markets, infrastructure constraints, and emerging technologies—and how these forces impact electricity prices and risk for large energy consumers.
About ECM Energy Management Services
ECM Energy Management Services is an energy advisory firm with more than 20 years of experience helping large organizations navigate wholesale electricity markets. ECM specializes in ISO-direct procurement, risk management, demand response, and renewable integration for data centers, financial institutions, healthcare systems, and large commercial real estate portfolios.
With a 100% client success rate, ECM helps energy decision makers reduce costs, manage volatility, and align procurement strategies with long-term operational and growth objectives.