The ESG perspective: The rise of the data centers

MARK PATTON, CONTRIBUTING EDITOR 

So, you may be asking yourself, “what do data centers and ESG in the oil field have in common,” and why am I talking about data centers in an oil and gas ESG column? Well, believe it or not, it’s all related, but first let me give you some background. 

Data Centers are essentially large buildings that house computer components and storage. The use of cloud storage saw an increase in data centers, and that demand has continued to grow. We’ve seen data centers in the oil field already but on a smaller scale, with bitcoin mining in the oil field. What we are witnessing is an explosion of data centers around the world for the development of Artificial Intelligence (AI). What attracted bitcoin miners was cheap energy, and that is part of what data centers need. They also need large open spaces and water. A World Economic Forum report states that a 5-MW data center will consume just under 1 MMbbl of water. 

The Permian basin advantage. Fortunately, for the Permian basin, they have stranded gas, billions of barrels of produced water, and plenty of open land. Gas processing capacity in the Permian basin has been growing steadily year after year, but takeaway capacity is lagging. This creates a bottleneck of natural gas in the Permian basin, specifically at the WAHA hub. 

WAHA Hub. The WAHA hub is a major gathering point for natural gas in the Delaware basin. It is also referenced as some of the cheapest natural gas in the world. One of the struggles is, as gas processing capacity expands, that takeaway capacity at the WAHA hub can’t keep up and has, on occasion including recently, gone negative. So, adding data centers in the Permian basin, especially near the WAHA hub, helps offset the takeaway capacity needs and provides the data center with cheap, reliable power. This is a win for the data center and the natural gas markets in the Permian basin. 

PowerBridge and others. Well, this scenario was part of the reason that Five Point Capital announced the formation of PowerBridge to develop data centers near the WAHA hub. And guess who is managing millions of barrels of produced water near there—WaterBridge, another Five Point holding. Of course, there are now many others pursuing this path— cheap reliable energy, plentiful water and open land, and a business-friendly environment in Texas. And the data center deals aren’t limited to the WAHA hub area. There are many pockets in the Permian basin with stranded gas creating an ideal scenario for data centers. There will be many more announcements this year. 

Data Centers and ESG in the oil field. So, that brings me to how ESG fits in. I’ve mentioned on a few occasions how major oil is going big into carbon capture, utilization and sequestration (CCUS), and one of the struggles has been building scale to reduce the cost, in line with the 45Q tax credit in an effort to get the economics right. This led Occidental to pursue building one of the largest Direct Air Capture facilities in the world, in the Permian basin. For CCUS to work, you need a reliable source of CO₂ that scales up to meet your sequestration capacity. Gas Processing facilities have some of the cheapest CO₂ available, but volatility in the natural gas markets leads to a significantly fluctuating CO₂ source, and let me tell you, underutilized assets are profit assassins. Having stranded capacity of anything is a bad thing, unless you’re the buyer of that underutilized capacity, especially when you’re trying to scale up a CCUS program. 

Now here comes the Data Center, a reliable continuous source of CO₂. A source that will be large-scale and which you can scale your CCUS program on. Power plants have always been a primary source of CO₂ in CCUS programs, but you need to be near the power plant. Well, now we are moving power plants into the Permian basin for Data Centers to meet the AI demand. 

So, let’s see how this all fits together. Major oil can now scale up CCUS even quicker and get to reduced carbon or carbon-neutral natural gas that has been selling for a premium and will be a requirement for LNG going to the EU and other overseas markets. Additionally, creating a natural gas demand within the Permian basin helps with the takeaway capacity problem and eliminates the price discounts being offered at the WAHA hub.  

Gas processing capacity. We mentioned one of the problems has been gas processing capacity outpacing the takeaway capacity and how that leads to a volatile natural gas price and fluctuating gas volumes, which lead to fluctuating CO₂ emissions. Now, imagine that this in-basin demand eliminates some of the volatility; well, now you have a less-fluctuating CO₂ source that is already the cheapest source available. 

You see, CO2 from gas processing is essentially captured CO₂, except that it is vented to the atmosphere, because they don’t have use for it. Now, this CO₂ is more reliable and available for more CCUS within the Permian basin. 

What’s next. Expect more announcements—the race for AI supremacy will play out globally, and the Permian basin will be a big player. The CCUS industry globally will be led by the Permian basin, and it will be the world’s largest CCUS hub. And then there’s the recycling of produced water. A new continuous demand for water will materialize in the Permian basin, where we have hundreds of billions of barrels of excess water.  

I expected that the Trump administration and their “Drill Baby Drill” mentality was going to provide some challenges, as low prices help the economy but slow down oil and gas drilling and completions. But with new demand coming into play, with additional LNG capacity being built, the question is, “can we keep up?” Can we build enough Data Center capacity to meet the demands of AI and other Data Center uses, and can we generate enough natural gas? 

But, if we can, imagine an oil and gas industry that becomes carbon-neutral and reduces the demand on oilfield disposal wells. Now, that’s the sustainability story of the decade. 

Keep your eyes open and watch this trend emerge this year; we’re about to get really busy.