Data center developers are navigating a complex energy landscape.

The sheer volume of electricity needed is bringing renewed interest in natural gas.

Developers planning to rely on gas should take that into account in site selection and pay attention to permitting pathways and regulatory frameworks. The Federal Energy Regulatory Commission has taken steps recently to provide greater flexibility and expedite installation of new natural gas infrastructure.

Site Selection

The old adage in real estate -- location, location, location -- has taken on new meaning in the data center world.

For data centers looking to scale, proximity to natural gas pipelines is useful. The ability to tap directly into a high-capacity pipeline can make or break a site’s viability for large-scale data center development.

Developers should look to put new data centers along major pipeline corridors, where they can “drill a hole and interconnect,” (perhaps not that easy, but close enough) minimizing infrastructure costs and permitting hurdles. In certain cases, where the economics are compelling, gas pipeline companies may be willing to build small lateral lines to reach data centers, with the costs of construction recouped through long-term service agreements.

Other key utility considerations for site selection include access to transmission, fiber and cooling sources. Reliable fiber-optic network access must be available to support high-speed data transfers. If water is available at the site, it can be used in cooling towers or heat exchangers to provide necessary cooling for the data center. Additionally, while natural gas can serve as the primary power source, developers should also consider proximity to the grid for supplemental backup power.

Site control for data centers is typically achieved through long-term ground lease agreements or by purchasing the land where the facilities will be sited. If leasing the site, the agreement should be tailored for data center use. The lease terms must permit the construction and operation of the data center as well as any essential utility upgrades. Because data centers require heightened security and access control, the site lease must also grant exclusivity to ensure security protocols are met. Additionally, the lease should have a term that is long enough to accommodate the useful life of the data center, as well as construction and decommissioning timelines. Depending on the project’s footprint, separate easement rights may also be necessary to secure access and utility rights for the site.

While developing within a major pipeline corridor offers the advantage of tying into existing utility infrastructure, it comes with the challenge of navigating competing property interests. Existing pipeline operators may hold priority easement rights or own the property where their pipelines are located. Developers will probably need to negotiate crossing rights and obtain third-party consents if their project infrastructure crosses third-party utility rights of way.

Developers targeting an even lower CO₂ emissions footprint through use of carbon capture technology also might consider putting data centers in proximity to CO₂ pipeline and sequestration facilities. Carbon capture technology typically requires use of amine solvent or other technology to remove CO₂ from combustion exhaust gas, followed by compression of the CO₂ and transportation by pipeline for permanent sequestration in deep underground repositories.

The primary sequestration options are offtake of CO₂ for use in enhanced oil and gas recovery (EOR) operations, referred to as carbon capture, use and sequestration (CCUS), or injection of CO₂ into permanent sequestration injection wells permitted under the Safe Drinking Water Act class VI underground injection control (UIC) program, referred to as carbon capture and sequestration (CCS). In either case, it will be important to put the data center close to existing or anticipated CCUS or CCS offtake pipelines and injection well facilities.

The transformation of Pennsylvania’s Homer City Generating Station into the Homer City Energy Campus is a case in point.

Once the state’s largest coal-fired plant, the site is being reborn as a 4.5-gigawatt natural gas-powered data center campus, leveraging its proximity to the Marcellus shale -- the second-largest natural gas field in the world. The project’s access to existing transmission lines, substations and abundant local gas supply made it an ideal candidate for redevelopment.

Similarly, another early-stage project currently under development envisions redeveloping a former West Virginia coal-fired electric power station to employ state-of-the-art natural gas combined cycle power generation technology combined with CCS, including a dedicated CO₂ pipeline and class VI CO2 injection well and sequestration facility. This project’s primary driver is to provide an alternative to grid power for dedicated electricity customers such as regional data centers looking for a reliable and clean electricity supply.
These examples illustrate how pipeline infrastructure and local energy economics are driving site selection. Other factors -- such as power supply reliability, local energy costs, the ability to monetize excess power, and the regulatory environment -- also play a role in site selection.

Reliability and Efficiency

For data centers, reliability is non-negotiable. Outages can cost millions in lost revenue and cause reputational damage. Natural gas is proving to be a safeguard against the growing risks of grid instability, power supply intermittency and extreme weather.

Unlike diesel, which is limited by on-site storage and supply chain vulnerabilities, natural gas is delivered continuously via pipelines, ensuring a steady supply even during prolonged grid outages. When paired with renewable energy sources, like solar and wind, natural gas can increase reliability as these sources also face obstacles in terms of intermittency and storage. For example, typical solar power generation site capacity factors are between 10% and 25%.

By contrast, combined heat and power (CHP) systems fueled by natural gas can operate independently of the grid, providing both electricity and cooling with efficiencies up to 80%. CHP power generation also provides significant efficiency gains compared to many other options. CHP refers to power generation configurations that produce two useful energy outputs from a single fuel: for example, electricity and steam from gas. This is also called cogeneration. This resilience is especially valuable as data centers become critical infrastructure for everything from financial services to national security.

The reliability advantage extends to peak demand periods, when grid electricity prices spike and the risk of brownouts increases. Natural gas generators can be dispatched rapidly to meet surges in demand, supporting uninterrupted operations. In Northern Virginia’s “data center alley,” for example, power demand is projected to rise from 4,000 MW today to 15,000 MW by 2030 -- potentially half the state’s total load. Due to such a large load increase, natural gas is essential for maintaining grid stability and preventing outages.

In utility-scale environments, natural-gas combined-cycle configurations are commonly employed, combining gas combustion turbines with heat recovery units to drive steam turbines. Other CHP configurations can provide heat or cooling in addition to electric power supply. In either case, CHP can provide significant efficiency benefits for data centers, which generate large amounts of heat and, therefore, typically have significant cooling system needs that might benefit from a co-located CHP electric power system.

Scalability

The growth trajectory of the digital economy shows no signs of slowing.

By 2030, US data center power demand is expected to more than triple, with AI and cloud computing as the primary drivers. Natural gas infrastructure is uniquely positioned to scale alongside this explosive growth.

Studies have suggested that data center power demand will grow by more than 10,000 MW by 2030 -- or nearly 2 Bcf per day of natural gas power if fully serviced by gas-fired generation. By 2050, an additional 153,000 MW of capacity will be needed.

Unlike diesel, which is limited by storage and emissions, natural gas pipelines and power plants can be expanded relatively quickly to meet rising demand. This may be useful to a project otherwise using renewable sources, where land and intermittency constraints may be potential obstacles to expansion. Pipeline expansion raises environmental, regulatory and permitting considerations. This is also a consideration for electric transmission infrastructure expansion for grid power and for renewable power generation and storage projects.

The US natural gas supply is robust and growing, with new pipeline projects and power plants coming online to serve the data center sector. For example, in Texas a new project between an AI startup and Energy Transfer will deliver 1,200 MW of gas-fired generation directly to a private data center campus. Other projects, like the Hays Energy project near San Marcos, are also being developed to meet this surging load.

Environmental

Power supply options present inherent tradeoffs, including the degree of environmental impacts and associated regulatory, permitting and stakeholder acceptance considerations.

Using power from a local electric utility may be a viable option with minimal regulatory issues where grid stability and connectivity are not constrained. However, reliability may be questionable, requiring consideration of on-site backup power options at a minimum.

Given the premium placed on reliability for data center facilities, an off-grid co-located primary power supply unit can provide significant benefits.

Diesel-fired power generation is more challenging to permit than gas, and diesel can also raise increased regulatory agency and stakeholder concerns due to its significant air pollution emissions and ambient airshed impacts, ranging from conventional pollutants such as NOx and SOx to PM and HAPs, as well as higher CO₂ emissions compared to natural gas.

Even renewable energy projects can encounter environmental and stakeholder concerns that require careful planning and engagement. The large footprints required for these options increase the potential for other adverse environmental impacts implicating a different set of regulatory or permitting challenges. Examples include impacts to endangered species, habitat, cultural, visibility or aquatic resources, and local stakeholder opposition as a result of these localized impacts.

Battery storage helps address power supply intermittency, but at the same time increases project footprints, thereby increasing the potential for environmental impacts. Storage systems also may stoke stakeholder opposition due to perceived risk of battery fires or other localized safety concerns.

Co-located natural gas power systems combine a small footprint and high reliability of a diesel-fired power system with lower air emissions than diesel, but still attract their own set of regulatory agency and stakeholder concerns, such as higher carbon dioxide emissions relative to renewable energy sources (albeit lower than diesel), and potential environmental impacts resulting from upstream gas extraction practices and pipeline rights of way.

In addition, advanced gas turbines can operate with 30% to 50% hydrogen fuel content. Operating with a higher hydrogen content achieves cleaner operations than other conventional power sources. Eventually, hydrogen content is targeted to reach 100% hydrogen, helping to reach net zero goals. This environmental edge is not just a matter of regulatory compliance, it is also a selling point for hyperscale data center operators under pressure to meet sustainability targets.

Energy Regulation

 Building a natural gas pipeline to serve a data center typically requires compliance with a complex framework of federal, state and local regulations.

At the federal level, the Federal Energy Regulatory Commission (FERC) oversees the siting, construction and operation of interstate natural gas pipelines under the Natural Gas Act. FERC’s approval process includes environmental reviews under the National Environmental Policy Act (NEPA), public notice and comment periods, and coordination with other federal agencies.

FERC has a five-mile stub-line exemption. Under it, a natural gas pipeline that is less than five miles in length and connects directly from an interstate pipeline to an end user like a data center may be exempted from the need for a full certificate. This exemption can significantly streamline the permitting process. However, the exemption is narrowly construed. Careful legal and regulatory analysis is required to determine eligibility.

For intrastate pipelines, state utility or public service commissions generally have jurisdiction. However, if the intrastate pipeline is moving interstate molecules, then FERC has jurisdiction. State utility commissions may require certificates of public convenience and necessity, environmental impact assessments, and demonstration of compliance with state-specific safety and land use regulations. Local governments may impose additional zoning, noise, and setback requirements, particularly in jurisdictions with heightened sensitivity to industrial development.

Commercial arrangements between pipeline operators and data centers are subject to regulatory oversight to ensure just and reasonable rates and non-discriminatory access.

FERC regulates rates and terms for interstate pipelines. State commissions oversee intrastate tariffs. Data centers often negotiate firm transportation contracts to secure priority access and capacity to gas. These require payment of reservation and usage charges.

Some states have tariffs and cost allocation mechanisms specifically for data centers to ensure that infrastructure upgrade costs required for large new loads are borne by the data centers themselves rather than shifted to other customer classes.

Utilities may impose minimum billing requirements and longer contract terms for large-load customers like data centers. 

Challenges

Challenges remain.

The main ones are permitting, regulatory hurdles, stakeholder opposition and the need for continued innovation in emissions reduction.

Solutions are emerging.

Currently, depending on size and jurisdiction, a pipeline project could take anywhere from eight months to five years. The federal government has been working on natural gas pipeline permitting reform that would allow pipeline projects to be built more expeditiously.

Carbon capture and sequestration can help with emissions reduction. Hydrogen blending is on the horizon, promising to make natural gas an even cleaner bridge to a renewable future.

The Homer City energy campus, with its seven high-efficiency, hydrogen-enabled turbines, shows how natural gas infrastructure can be scaled to power not just data centers but also the local community.