By Garrett Delk, Pickering Energy Partners
Equity market fervor of the past few months has been driven in part by the growing integration of artificial intelligence (AI) in products and services as well as the prevalence of data centers to administer the rapidly expanding computing capacity required to facilitate these models. These gains in valuation have been largely concentrated in the technology sector, however, while markets have clearly rewarded companies associated with the ‘new’ economy, a less associated but equally consequential fact is the immense energy demand (and subsequent emissions generation) needed to power these innovations.
As an example, OpenAI’s prominently covered model, ChatGPT is estimated to consume “over half a million kilowatts of electricity each day, an amount staggering enough to service about 200 million requests” which equals the daily power usage of roughly 180,000 U.S. households. Similarly, the data centers required compute these models and facilitate an array of other products and services is anticipated to reach 35 million kwh by 2030. In this same vein, global energy demand is set to increase through 2050 via population and GDP growth as well as prolonged geopolitical focus on energy security and in some annual cases demand will outstrip supply. So for the next two and a half decades the world will see growing energy demand and related CO2 emissions, of which a higher percentage will incrementally include AI and data centers that require cheap and affordable energy that U.S. oil and gas will continue to provide, however, the revenues and market premiums of which will be captured primarily by tech sector players.
As a result, U.S. oil and gas companies are unduly burdened with both supporting data center and AI driven energy demand while also being penalized for efficiently managing the associated emissions. Ultimately, this unequal risk-reward distribution is a of market dynamics. We don’t, nor should energy investors or operators, anticipate a market function that links gains in other industries to oil and gas companies providing the power. Rather, this is an issue centered on messaging and narrative for the energy industry. The confluence of increasing energy demand through and likely past 2050, geopolitical necessity for energy security, and the abandonment of net zero goals, cements the relevance of U.S. oil and gas for decades to come. Likewise, emissions efficient technology comes from R&D spend by the traditional energy value chain. These are intrinsically positive trends the industry should embrace. We recommend the best way for U.S. energy companies to not only combat negative perception but gain public appreciation (and subsequent market share) is through disclosure. Quantitative and qualitative reporting via annual sustainability reports remains the best way for companies to get ahead of the narrative as well as enhancing Task Force on Climate-Related Financial Disclosure (TCFD) which is the bedrock of the final SEC Climate rule.
Sources:
- https://www.forbes.com/sites/cindygordon/2024/03/12/chatgpt-and-generative-ai-innovations-are-creating-sustainability-havoc/?sh=6948dd693f6d
- https://www.mckinsey.com/industries/technology-media-and-telecommunications/our-insights/investing-in-the-rising-data-center-economy
- https://oilprice.com/Energy/Energy-General/IEA-Global-Oil-Demand-Will-Outstrip-Supply-In-Late-2023.html
- https://www.eia.gov/outlooks/ieo/
- https://newsroom.accenture.com/news/2022/nearly-all-companies-will-miss-net-zero-goals-without-at-least-doubling-rate-of-carbon-emissions-reductions-by-2030-accenture-report-finds
Energy Workforce partner Pickering Energy Partners provides insights on ESG due diligence, disclosures and reporting. Garrett Delk is Associate, ESG Strategy & Integration.
