What the last gas boom (and bust) says about today’s rush to build

Core Insights - The U.S. electric power sector is increasingly reliant on natural gas, which accounted for about 40% of total natural gas consumption and 42% to 43% of utility-scale electricity generation by 2023, making it the largest fuel source [1] - The interdependence between the gas and electric power sectors has significantly increased since 2000, with the electric power sector's gas consumption rising from 22% to 40% [2] - Investment in gas plants is surging, with valuations for gas power mergers and acquisitions doubling since 2024, reaching up to $1.93 million/MW in some markets [4] Industry Trends - The U.S. is producing and consuming more gas than ever, primarily due to fracking, with production concentrated in Texas, Louisiana, Pennsylvania, and West Virginia [3] - The demand for gas-fired power plants is being driven by the needs of data centers, with significant investments being made in new gas generation projects [15][16] - The rise of renewables and energy storage is notable, with utility-scale wind and solar accounting for 83% of new generation additions through July 2028, while gas represents about 16% [8] Market Dynamics - Major gas pipeline expansions are planned, with existing pipelines running at capacity and a record number of inquiries for new pipelines being reported [12] - The cost of new natural gas power plants has risen significantly, averaging between $2,200/kW to $3,000/kW, with total costs potentially reaching $4,000/kW to $4,500/kW when including fuel and infrastructure [19] - Utilities are taking precautions to protect ratepayers from potential overbuilding, with new rate classes for large loads being proposed in at least 30 states [25][26] Future Outlook - The need for dispatchable, long-duration capacity resources is expected to persist, with new gas capacity likely to be built despite the risks associated with investments in thermal generation [23] - The power industry has matured since the last bubble burst, with utilities now more cautious about overbuilding and focusing on long-term offtake agreements [32] - The impact of AI on power consumption remains uncertain, with concerns about building infrastructure for data centers that may not yet exist [30]