Natural gas (NYMEX: NGN5) is turning rural Pennsylvania into an unlikely data center hotspot
Rural Pennsylvania—known for rolling hills, dairy farms and large communities of Amish traditionalists who shun modern technology and dot the roads with horse-drawn buggies—is becoming an unlikely outpost of the AI revolution. Investors are suddenly spending billions to build data centers across the Appalachian landscape, and it’s not cheap land drawing them in. Natural gas (NYMEX: NGN5), rather, is at the heart of the boom.
In April, Knighthead Capital Management announced plans to convert what had been the largest coal-fired power plant in the US into the largest natural gas-fired one as part of a $10 billion project to build out a data center complex in Homer City, PA. GE Vernova (NYSE: GEV) will provide seven turbines for the plant that are expected to generate 4.5 gigawatts of electricity.
“We have energy that can be used to power these data centers, that can be used to power the Gen AI models that we’re going to need in order to win,” Governor Josh Shapiro said.
Access to electricity supply is the “binding constraint on expanded computational capacity and therefore on continued US leadership in AI,” according to the Center for Strategic & International Studies, and tech developers are increasingly focused on the speed with which they can guarantee all the electrons they need. While Amazon (NASDAQ: AMZN) and others are spending billions to build data centers near nuclear plants in Pennsylvania, natural gas may hold even more promise—simply because there’s so much of it.
Deep pockets, underground
The state sits atop the Marcellus Shale formation that contains 410 trillion cubic feet of reserves—enough to meet America’s energy needs for hundreds of years, according to the US Energy Information Administration. Drilling activity in the region has ebbed and flowed over the past decade, mostly as a function of spot prices and the availability of transport infrastructure, but the new demand from tech companies could remake the industry.
Markets are already reacting. The AI-fueled rally first boosted large electricity producers last year, sending shares of Vistra (NYSE: VST) and NRG Energy (NYSE: NRG) soaring. This year, it’s nuclear energy that’s been hot, especially after Constellation Energy (NASDAQ: CEG) agreed to restart the Three Mile Island nuclear facility—located in Middletown, PA—after signing its largest-ever power purchase contract with Microsoft (NASDAQ: MSFT).
Natural gas companies may be next to ride the wave. Top producers in the Marcellus Shale include Expand Energy (NASDAQ: EXE), EQT Corp (NYSE: EQT), Range Resources (NYSE: RRC) and Antero Resources (NYSE: AR), and all of them are outperforming the S&P 500 so far this year by more than 100%.
A ‘widow maker’ no more?
Natural gas trading, of course, is known for volatility—so much so that it’s frequently called a ‘widow maker’ in a dark reference to the consequences that can occur when a bet goes south. The US market is heavily affected by weather, and a warmer-than-expected winter can send prices crashing as the fuel is used to heat many homes; while it’s also been more geographically segmented than crude oil—which can be sent anywhere on tankers—the growing business of liquefying natural gas for export is starting to change that dynamic.
Indeed, data centers seem poised to bring further stability to the market for natural gas, especially as their demand for electricity is seemingly insatiable at the moment. Henry Hub futures for the fuel already show that traders expect prices to rise over the coming year, and that could be a boon for Pennsylvania drillers.
A new season of The Beverly Hillbillies looks to be underway, and it’s only fitting that it’s happening in the very region that first birthed America’s oil industry all the way back in 1859.
