Why the US grid needs natural gas to meet AI and EV demand

The US power grid is at a turning point. Aging infrastructure, built decades ago, is facing intensifying strain as demand surges from artificial intelligence, electric vehicles, and resurgent domestic manufacturing. Meeting this rapidly shifting energy landscape requires a blend of capital, coordination, and fuel diversification. Among these, natural gas is emerging as a critical enabler. Its cost-effectiveness, dispatchability, and rapid deployment position it as a practical bridge for utilities and investors navigating the transition to a lower-carbon grid.

The AI and EV revolution strains the electricity infrastructure

AI workloads are on a trajectory to significantly disrupt energy consumption patterns. According to the Department of Energy, data centers consumed 176 terawatt-hours (TWh) of electricity in 2023, representing 4.4 percent of total US electricity demand. That number could rise as high as 12 percent by 2028. High-performance AI models, particularly generative AI systems, require energy-intensive computing infrastructure.

At the same time, EVs are reshaping local grid dynamics. Charging stations add substantial new loads, often clustered in areas not originally designed for such capacity. Meanwhile, onshoring manufacturing facilities further increases electricity intensity, especially in heavy industrial sectors. The combined result is a grid that is struggling to keep up, not just in urban centers, but in rural and suburban regions where infrastructure was not built for such modern-day usage patterns.

Utility spending and policy reveal urgency, but fragmentation persists

Utilities and grid operators are responding with historic levels of investment. In 2023, capital expenditure on transmission systems exceeded $27 billion, marking nearly threefold growth since 2003. Distribution infrastructure, the final mile of energy delivery, saw $6.1 billion in new substation equipment alone, up 184 percent since 2003.

However, the structure of the US grid creates systemic inefficiencies. Transmission planning is divided among regional transmission organizations, state regulators, and local utilities. This decentralized model hampers long-range, high-voltage project coordination. Moreover, the country’s three major interconnections, the Eastern, Western, and ERCOT (Texas) operate with minimal interconnectivity. During extreme weather events or demand spikes, this separation limits flexibility and resilience, increasing the risk of outages and higher consumer costs.

Natural gas emerges as a fast, reliable, and scalable option

In contrast to long permitting timelines and intermittency challenges associated with renewables, natural gas provides dispatchable generation that can be brought online quickly. The Energy Information Administration reports that in 2022, natural gas-fired power plants cost $820 per kilowatt to build, compared with $1,588 for solar and $1,451 for wind. This price advantage, paired with shorter construction lead times, positions natural gas as the go-to option for utilities seeking rapid deployment to meet surging demand.

Natural gas offers low costs, consistent performance, a necessity for data centers requiring 24/7 uptime and manufacturing plants operating around the clock. Its role as a stabilizing asset is further enhanced when paired with battery storage or virtual power plants.

The pace of deal-making in this space has accelerated. In 2025, ArcLight Capital Partners acquired an additional 25 percent stake in the Natural Gas Pipeline Company of America, giving it a 62.5 percent ownership position alongside Kinder Morgan.

Private equity and LNG trends reshape the natural gas landscape

Other major players are also entering the fold. NRG Energy agreed to a $12 billion acquisition of LS Power’s natural gas generation portfolio and its commercial and industrial virtual power platform. Blackstone Energy Transition Partners recently closed a $1 billion deal for the Potomac Energy Center, a 774-megawatt gas-fired plant in Loudoun County, Virginia. The firm also announced a $3.5 billion joint venture with EQT Corporation to invest in natural gas pipelines.

On the fund side, Kayne Anderson raised $2.25 billion for its Private Energy Income Fund III, surpassing its $1.5 billion target. This fund focuses on acquiring and developing oil and gas assets, reflecting enduring investor appetite for fossil fuel-backed cash flow during the energy transition.

At the global trade level, US liquefied natural gas exports are forecast to grow 22 percent in 2025, propelled by new capacity coming online and increasing demand from Europe and Asia. Henry Hub prices, meanwhile, are projected to average $3.62 per million British thermal units this June and could reach $4.10/MMBtu by year-end, reinforcing the commodity’s investment attractiveness.

Sources:
Connect Money
US Department of Energy