How gas infrastructure shapes AI data center growth

Whilst longer-term, lower carbon approaches continue to develop, one pragmatic near-term solution preferred by many data center developers to this dilemma is an on-site, co-located Bring Your Own Generation (BYOG) solution (commonly referred to as the Behind-the-Meter (BTM) model). This is where natural gas generation is deployed on-site as a timely alternative, offering rapid scale, flexibility, and dispatchability through varying turbine or engine types and configurations. Nowhere is this more evident than West Texas, where abundant, inexpensive gas supply and infrastructure have attracted large campus developers that are building onsite generation to power these facilities.

On-site gas generation is seen as a way to avoid lengthy grid interconnection timelines, but sourcing generation equipment is the easy part. The more complex and critical path is reliable gas supply and transportation. In some regions, pipeline capacity and lead times are just as congested as grid interconnection.

Securing gas service for AI data centers requires aligning three separate, but interdependent, elements:

1. Connecting the facility to the existing pipeline network through a dedicated lateral
2. Procuring the gas commodity itself
3. Contracting for pipeline transportation capacity to reliably deliver supply.

While these elements are closely connected, they are often evaluated as if they are one and the same. That can lead developers to overestimate the importance of physical proximity to gas infrastructure while underestimating the commercial and transportation arrangements required to secure reliable supply. This misunderstanding frequently surfaces during site selection and is one of the most common causes of late-stage surprises.

Misconception: Proximity to pipeline means gas availability

It’s commonly assumed that a nearby pipeline automatically enables gas-fired power generation development. However, in practice, three separate questions must be answered: Can a lateral physically connect to the pipeline? How do you source the commodity and what is the price exposure? Is there sufficient transportation capacity on the pipeline system to deliver firm gas during peak demand periods?

A site may satisfy the first requirement while failing the latter two. As a result, developers should evaluate gas infrastructure feasibility before finalizing site acquisition decisions.

We dive into each of these questions further to help site-selection, and devise a strong on-site natural gas solution strategy that will deliver power on targeted timelines.

Evaluating pipeline lateral construction and CapEx

Pipelines are expensive to build, particularly when constructing through populated areas or crossing water bodies, wetlands, or protected areas, where acquiring right-of-way can be a lengthy and costly exercise. Minimizing exposure to these right-of-way and ingress/egress issues can significantly reduce construction costs and timelines.

All else being equal, power generation should ideally be sited within 10 miles of an existing main line; farther siting raises the risk of needing additional compression to deliver adequate line pressure. Lateral construction costs typically run $1.0 to $2.5 million per mile, though this range can vary significantly based on the pipeline diameter required to serve demand, the right-of-way being transited, and the site's location. Larger, longer laterals often exceed it substantially.

Structuring natural gas commodity procurement

Unlike the physical infrastructure required to connect to a pipeline system, gas supply can be sourced through one of the deepest and most liquid commodity markets in North America with producers, marketers, utilities, and end users transacting billions of dollars of natural gas every year.

There are broadly four dimensions to a commercial procurement strategy, which define a gas buyer’s exposure to market risks and inform downstream transportation.

• Term – how long will one purchase last: lock up supply on a month-to-month basis versus a longer-term commitment?
• Delivery point – where does one want to take title and physical responsibility for the natural gas?
• Pricing – acquire at a “firm” (i.e., given/known) price or purchase supply at an index (i.e., floating) price that will change as the market moves?
• Counterparty – purchase from a commodity marketer, oil and gas producer, utility, the pipeline itself, or manage a portfolio of various supply providers?

Mitigating curtailment risk with firm pipeline transportation

Based on the delivery point(s) of natural gas supply agreements, the developer will determine its requirements for securing natural gas transportation main line capacity. Beyond the physical geographic location of where natural gas is consumed, there are two other key considerations in acquiring the transportation for natural gas: How reliable and constant does the supply have to be, and how much, and in what form, to pay for the transportation service (i.e., a fixed fee demand charge to rent and secure a portion of the capacity of any pipeline route needed).

Firm transportation agreements, or FT contracts, incorporate a fixed demand charge amount that compensates the pipeline company for reserving a defined amount of transport capacity space to a specific counterpart, which guarantees natural gas transportation up to a certain volume threshold each day. These contracts typically cost more as the customer pays for not just the volumes they transport and receive, but the right to the pipeline capacity for those volumes.

Interruptible transportation, or IT contract holders, are given the option to transport natural gas delivery each day after the pipeline completely satisfies the daily volume capacity claimed by FT holders. IT transportation agreements are cheaper since the pipeline has no obligation to provide the IT holder any daily or future pipeline capacity, as IT holders are not paying a daily reservation rate. Therefore, the generation operator is not guaranteed that their natural gas supply will be transported on the pipeline, which often leaves IT customers without gas transportation on peak demand days.

Alongside these considerations, gas transport strategies must align with workload criticality. Mission-critical sites, for example real-time AI inference or financial trading, require firm transportation, while facilities with flexible operations, such as batch AI model training or data archiving, can cut costs using interruptible capacity.

Diligence should go beyond proximity

Gas-related constraints are often not identified until after land has been acquired and power generation development plans have advanced. However, early-stage diligence should evaluate:

• Distance to transmission pipelines
• Existing pipeline utilization levels
• Availability of firm transportation
• Potential right-of-way challenges for lateral construction
• Regional gas market liquidity
• Long-term supply and associated market exposure.

Before committing capital to land acquisitions or on-site turbines, robust gas supply and pipeline due diligence are critical to protecting project economics.

Whether you need pre-acquisition gas feasibility, pipeline capacity modelling, or fuel procurement hedging for project finance, PA Consulting's dedicated natural gas team is ready to help.

In regions where on-site gas-fired power generation is becoming the preferred route to energization, pipeline access, transportation capacity, and fuel supply are just as important as the generation equipment itself. Developers that recognize this early will gain a significant advantage in bringing new capacity online, avoiding delays, and keeping projects on schedule.