8 ms·

The current natural gas price in West Texas (the WaHa hub, north of Coyanosa, TX) is negative. And has been for a while. The price peaked (dipped?) to -$9/MCF a

by auspiv 3mo ago

The current natural gas price in West Texas (the WaHa hub, north of Coyanosa, TX) is negative. And has been for a while. The price peaked (dipped?) to -$9/MCF a couple months ago. That means gas producers had to pay $9 per MCF for it to be taken away. Oil in the Permian comes with gas, a lot of it, so to produce oil, you need to get rid of gas. Wells I'm familiar with have 4000-5000 cubic feet of gas per barrel of oil. Recall in oilfield M = thousand, so that's 4-5 MCF per bbl of oil. There is no free gas pipeline capacity to get gas out of West Texas. Any time new pipelines are built, they are filled within months. This makes a ton of sense for oil producers (which are also gas producers) who can sell their gas for less of a loss (potentially a profit!) and also for MSFT who can lock in long term contracts for minimal cost. I'd guess these contracts are for $1-2/MCF which is win/win for the oil companies in the area and MSFT.

declan_roberts 3mo ago
Even corporate ESG policies bend the knee to cheap Texas energy!
epistasis 3mo ago
This might make sense for oil producers to get rid of their natural gas, which is nearly a waste material, but I'm struggling to understand how it makes sense for Microsoft. Despite the cheap natural gas, and an abundance of investors and builders with natural gas expertise, in the competitive electricity generation market everybody is deploying solar and batteries in west Texas because it's still more profitable than gas generation. Further, there's a gas turbine shortage so Microsoft choosing to put their (presumably limited) allocation of gas turbines in West Texas, where they have good alternatives, seems a bit mysterious. Why not save that massive amount of turbines for the northeast DCs, where renewables work far poorer yet gas is more reliable? The reasons that seem most convincing to me: 1. Political environment is hostile to renewables and Microsoft doesn't want to paint a target on their back by choosing solar plus batteries, the choice others are making in West Texas. 2. Grid connection drastically changes economics, but pipelines for gas are cheap or something, so the massive cost and delay from grid interconnection simply isn't worth it 3. There are particular political favors going on with Chevron, e.g. Chevron wants gas in the area and is willing to increase MS's turbine allocation if they do it in west Texas, or Chevron is helping get around pesky local political approvals for data centers, or something like that. The cost of gas does not seem like a justification for this, though.
- stonogo 3mo ago
  The cost of gas is completely irrelevant. In order to bring a new large load onto the grid, you have to coordinate with ERCOT, and they just made that process more tedious. Once you get your grid connection approved and built out, you have to source your own power anyway, and frankly there just isn't enough power on the market to realize the stated datacenter buildout goals in this country. In short, you're going to have to build your own power plant anyway, so why bother with the grid? Gas is the cheapest, fastest zero-to-production choice for onsite power generation, and has been for a long time. Unless you're dealing with nuclear, the fuel cost just doesn't matter compared to the rest of the buildout, and gas wins because you can take off-the-shelf turbines and bolt them down. You can only get away with it in places that don't care about environmental regulations, which are the places most likely to approve new buildout of gas infrastructure anyway. Nobody in the northeast is going to approve the creation of a brand new carcinogen factory.
  - epistasis 3mo ago
    > Gas is the cheapest, fastest zero-to-production choice for onsite power generation, and has been for a long time. Is it, though? There's a ton of projects out there waiting to get their solar on the grid in west Texas, partnering with one of them and launching the project early while waiting on the interconnection queue, and adding enough batteries, gives a more robust solution right now without the SPOF nature of large single generators. Add to that the long backorder list for gas turbines right now, with no end in sight, and I'm surprised that Microsoft would power this particular location with turbines because it's probably their best chance to do off-grid massive solar projects. Massive off-grid solar is what China is choosing for some absolutely massive new industrial projects. Nuclear is a no-go because it takes so long to deploy, but solar + batteries are cheap COTS and available in abundance, unlike gas turbines.
    - dopa42365 3mo ago
      >Add to that the long backorder list for gas turbines right now If demand > supply then the price goes up. Doesn't mean you can't buy something though.
caminante 3mo ago
Profits still ain't easy. Cheap gas is great, but 2.67GW of new build natural gas in this market will cost $6-8 billion in fixed costs. You need wholesale pricing of ~$50-60/MWh ... OVER 25 years! ... to recover just the fixed costs. For West Texas, prices averaged mid-$30s over the last year. Microsoft has all of the leverage here, and Chevron wants a big announcement in an area where they don't have a lot of experience.
hvb2 3mo ago
I don't understand why datacenters especially shouldn't be able to run mostly on renewables. This won't apply to every datacenter, but the AI inference ones especially, should be seeing most demand during the day. So what's built in north America is used when it's daylight there? If so, isn't that a perfect case for solar? To be clear, I'm not saying it can power down, but at night it should be able to scale down significantly?
- p1necone 3mo ago
  > should be seeing most demand during the day I don't know if this is necessarily true - latency isn't really important for inference in the same way as many other services (at least the max ~300ms latency you get from hitting something on the other side of the globe) - compute in NA can serve all the other timezones just fine.
- deleted 3mo ago
  [deleted]
- drysine 3mo ago
  The most of the cost is GPU, not power. Demand for AI is global (except for Anthropic, haha). When you build a DC that works only when the sun is shining, you are wasting half of you GPU capacity
  - rwyinuse 3mo ago
    That's why you build batteries that can store electricity for the other half. Or maybe nuclear power.
    - frollogaston 3mo ago
      The batteries are expensive. Otherwise I'd expect to see wholesale electricity prices fluctuate a lot less.
supertroop 3mo ago
Is all natural gas the same or are there grades? Like is the gas that comes out of oil pumping the same kind I pay for to heat my house?
jillesvangurp 3mo ago
Gas and petrol are technically by products of oil refineries that produce all sorts of chemicals. Before cars took off, refineries used to dump petrol in rivers as it was worthless. Petrol is still in demand but facing world wide double digit percentage declines as a quarter of the vehicles being sold is now electric. These vehicles don't require any petrol/diesel. That is closer to 50% in China and the rest of the world is buying lots of these things. By the mid 2030s, most vehicles sold will be electric world wide. That means a lot of refineries that are currently subsidizing chemical production with petrol and gas sales, are going to face some serious demand issues for these by products over the next decades. Texas is going to be somewhat shielded from this because of US policy on this front. But probably only for a few short years. Mostly LNG exports are currently very lucrative. But LNG production is bottlenecked on expensive infrastructure and shipping. And of course lots of importers of LNG are looking for more affordable alternatives as well because it is expensive. Doubly so since the recent Gulf conflict. A lot of planned infrastructure expansion just got cancelled. So, there's probably a bit of gas overproduction happening in Texas currently and that's going to cause predictable issues when demand is going to be structurally lower. And the double whammy of petrol/diesel also going into structural decline is going to leave Texas with a lot of over production.

by auspiv 3mo ago

declan_roberts 3mo ago

Even corporate ESG policies bend the knee to cheap Texas energy!

epistasis 3mo ago

This might make sense for oil producers to get rid of their natural gas, which is nearly a waste material, but I'm struggling to understand how it makes sense for Microsoft. Despite the cheap natural gas, and an abundance of investors and builders with natural gas expertise, in the competitive electricity generation market everybody is deploying solar and batteries in west Texas because it's still more profitable than gas generation. Further, there's a gas turbine shortage so Microsoft choosing to put their (presumably limited) allocation of gas turbines in West Texas, where they have good alternatives, seems a bit mysterious. Why not save that massive amount of turbines for the northeast DCs, where renewables work far poorer yet gas is more reliable? The reasons that seem most convincing to me: 1. Political environment is hostile to renewables and Microsoft doesn't want to paint a target on their back by choosing solar plus batteries, the choice others are making in West Texas. 2. Grid connection drastically changes economics, but pipelines for gas are cheap or something, so the massive cost and delay from grid interconnection simply isn't worth it 3. There are particular political favors going on with Chevron, e.g. Chevron wants gas in the area and is willing to increase MS's turbine allocation if they do it in west Texas, or Chevron is helping get around pesky local political approvals for data centers, or something like that. The cost of gas does not seem like a justification for this, though.

stonogo 3mo ago
The cost of gas is completely irrelevant. In order to bring a new large load onto the grid, you have to coordinate with ERCOT, and they just made that process more tedious. Once you get your grid connection approved and built out, you have to source your own power anyway, and frankly there just isn't enough power on the market to realize the stated datacenter buildout goals in this country. In short, you're going to have to build your own power plant anyway, so why bother with the grid? Gas is the cheapest, fastest zero-to-production choice for onsite power generation, and has been for a long time. Unless you're dealing with nuclear, the fuel cost just doesn't matter compared to the rest of the buildout, and gas wins because you can take off-the-shelf turbines and bolt them down. You can only get away with it in places that don't care about environmental regulations, which are the places most likely to approve new buildout of gas infrastructure anyway. Nobody in the northeast is going to approve the creation of a brand new carcinogen factory.
- epistasis 3mo ago
  > Gas is the cheapest, fastest zero-to-production choice for onsite power generation, and has been for a long time. Is it, though? There's a ton of projects out there waiting to get their solar on the grid in west Texas, partnering with one of them and launching the project early while waiting on the interconnection queue, and adding enough batteries, gives a more robust solution right now without the SPOF nature of large single generators. Add to that the long backorder list for gas turbines right now, with no end in sight, and I'm surprised that Microsoft would power this particular location with turbines because it's probably their best chance to do off-grid massive solar projects. Massive off-grid solar is what China is choosing for some absolutely massive new industrial projects. Nuclear is a no-go because it takes so long to deploy, but solar + batteries are cheap COTS and available in abundance, unlike gas turbines.
  - dopa42365 3mo ago
    >Add to that the long backorder list for gas turbines right now If demand > supply then the price goes up. Doesn't mean you can't buy something though.

caminante 3mo ago

Profits still ain't easy. Cheap gas is great, but 2.67GW of new build natural gas in this market will cost $6-8 billion in fixed costs. You need wholesale pricing of ~$50-60/MWh ... OVER 25 years! ... to recover just the fixed costs. For West Texas, prices averaged mid-$30s over the last year. Microsoft has all of the leverage here, and Chevron wants a big announcement in an area where they don't have a lot of experience.

hvb2 3mo ago

I don't understand why datacenters especially shouldn't be able to run mostly on renewables. This won't apply to every datacenter, but the AI inference ones especially, should be seeing most demand during the day. So what's built in north America is used when it's daylight there? If so, isn't that a perfect case for solar? To be clear, I'm not saying it can power down, but at night it should be able to scale down significantly?

p1necone 3mo ago
> should be seeing most demand during the day I don't know if this is necessarily true - latency isn't really important for inference in the same way as many other services (at least the max ~300ms latency you get from hitting something on the other side of the globe) - compute in NA can serve all the other timezones just fine.
deleted 3mo ago
[deleted]
drysine 3mo ago
The most of the cost is GPU, not power. Demand for AI is global (except for Anthropic, haha). When you build a DC that works only when the sun is shining, you are wasting half of you GPU capacity
- rwyinuse 3mo ago
  That's why you build batteries that can store electricity for the other half. Or maybe nuclear power.
  - frollogaston 3mo ago
    The batteries are expensive. Otherwise I'd expect to see wholesale electricity prices fluctuate a lot less.

supertroop 3mo ago

Is all natural gas the same or are there grades? Like is the gas that comes out of oil pumping the same kind I pay for to heat my house?

jillesvangurp 3mo ago

Gas and petrol are technically by products of oil refineries that produce all sorts of chemicals. Before cars took off, refineries used to dump petrol in rivers as it was worthless. Petrol is still in demand but facing world wide double digit percentage declines as a quarter of the vehicles being sold is now electric. These vehicles don't require any petrol/diesel. That is closer to 50% in China and the rest of the world is buying lots of these things. By the mid 2030s, most vehicles sold will be electric world wide. That means a lot of refineries that are currently subsidizing chemical production with petrol and gas sales, are going to face some serious demand issues for these by products over the next decades. Texas is going to be somewhat shielded from this because of US policy on this front. But probably only for a few short years. Mostly LNG exports are currently very lucrative. But LNG production is bottlenecked on expensive infrastructure and shipping. And of course lots of importers of LNG are looking for more affordable alternatives as well because it is expensive. Doubly so since the recent Gulf conflict. A lot of planned infrastructure expansion just got cancelled. So, there's probably a bit of gas overproduction happening in Texas currently and that's going to cause predictable issues when demand is going to be structurally lower. And the double whammy of petrol/diesel also going into structural decline is going to leave Texas with a lot of over production.