Publications: Notes at the Margin

The AI Industry's Coming Dominance of Oil and Gas (February 23, 2026)

 

The leading artificial intelligence firms plan to spend more than $600 billion in 2026 as they rush to open data centers. Speed is everything. Price is no object. Many of the new projects will not be connected to the power grid but will rely on on-site electricity generation. Seventy-five percent of the new facilities will use natural gas for this. The current forecasts for US natural gas demand do not account for this recent development. The surge in AI demand could push gas and perhaps diesel and jet fuel prices to new highs. Electric utilities and consumers will likely complain about the increases. US LNG exports will fall as supplies become uncompetitive with gas from countries like Qatar and Australia, and liquefaction plants in the United States will become stranded assets.

 

The AI boom may also drive diesel consumption higher. “The US is looking to tap the nation’s network of large industrial diesel generators used at data centers, big box stores and elsewhere to help curb rising electricity costs and support the surge in power demand from artificial intelligence, according to Energy Secretary Chris Wright.”[i]The Secretary has not done the numbers. US diesel use in an already tight market could rise by 10% should his plan come to fruition. Farmers and truckers might see prices of $5 or $6 per gallon, and the increases could come just before the US midterm elections in November.

 

The Supreme Court's February 20 decision nullifying President Trump’s authority to impose tariffs under the International Emergency Economic Powers Act technically freed nations coerced into purchasing energy exports from the United States from their obligations. Many will renegotiate using their new leverage. US LNG exporters will likely also be squeezed by price increases driven by rising AI data center demand and by the availability of lower-cost LNG from other nations.

 

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