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In this episode of the Hydrocarbon Engineering Podcast, David Wilson, CEO, Energy Exemplar, talks us through the data centre boom and the vital role that oil and gas has to play in the energy mix.
David explores whether oil and gas is keeping up with demand so far and whether it will continue to do so as data centres grow and expand.
Other topics include:
David explores whether oil and gas is keeping up with demand so far and whether it will continue to do so as data centres grow and expand.
Other topics include:
- The role that low-carbon gas and CCS will play as data centres push for net zero emissions.
- Why uncertainty around renewables in the US will shift the outlook of the energy mix moving forward.
- How the oil and gas industry’s role in the data centre ecosystem will evolve in the future.
This episode of the Hydrocarbon Engineering Podcast is sponsored by Owens Corning FOAMGLAS® cellular glass insulation — an impermeable insulation trusted in high-performing hydrocarbon processing facilities around the globe. Learn more at https://www.owenscorning.com/en-us/insulation/foamglas
Creators and Guests
What is Hydrocarbon Engineering Podcast?
The Hydrocarbon Engineering podcast: a podcast series for professionals in the downstream refining, petrochemical and gas processing industries.
Hello and welcome to the Hydrocarbon Engineering Podcast, the podcast series for professionals in the downstream refining, petrochemical and gas processing industries. I m your host Callum O'Reilly and in this episode I am joined by David Wilson, CEO at Energy Exemplar, an analytics company that supports businesses in revolutionising the future of energy through modelling and simulation. We're going to be discussing the role that oil and gas is currently playing in the booming data center industry and what the future holds. So let's talk to David.
Advert:The Hydrocarbon Engineering Podcast is brought to you by Owens Corning Foam Glass Insulation. From managing vapor drive and mitigating corrosion risk to maintaining thermal performance and supporting safety on the jobsite, the insulating system plays a critical role in high performing hydrocarbon processing facilities. Learn more about how foam glass insulation contributes to the design of high performing insulating systems at cryogenic facilities at ww.owenscorning.com/foamglasslngstudy. That's www.owenscorning.comfoamglaflngstudy.
Callum O'Reilly:Hi, David. Welcome to the podcast, and thank you so much for joining us today. How are you?
David Wilson:I'm doing very well. Thanks, Callum.
Callum O'Reilly:Great. Okay, David. So before we dive into the topic of our podcast today, is the role of oil and gas in data centers, I thought it would be beneficial if you could introduce yourself to our listeners and perhaps tell us a little bit about the work that Energy Exemplar does.
David Wilson:Thanks. So I'm the CEO of Energy Exemplar. I've actually spent my whole career in energy. I started out designing power plants. I worked and worked upstream oil and gas for Saint Berge for quite a few years.
David Wilson:I've touched the refining sector, and then I was serving McKinsey and Company, helping a lot of primarily energy utilities transition or built their outlook for the future. And eight years ago, I joined Energy Exemplar, and Energy Exemplar provides the largest simulation platform globally, which really gives the ability for companies in the energy sector to look into the future. We serve around 700 organizations in 80 countries from the oil and gas majors through to this energy system operators, the gas network operators, etcetera. So it's a very broad set of users all aimed at understanding a bit more about the future.
Callum O'Reilly:Thank you for that introduction, David. So first question from me today, what does the current energy mix around data centers look like? And how does oil and gas factor into the data center energy mix?
David Wilson:It's such a simple question, but a complicated set of answers because it depends a bit around where you are in the world and which data centers you're talking about particularly. But in general, a large part of the the load per data centers come primarily from gas, less so from oil. I mean, there is an oil presence with a lot of data centers choosing to have a backup capability on-site, is typically covered by oil. But in terms of actual generation, mix oil is a smaller part of the story. So for a lot of data centres, gas is a strong supplier, as well as renewables are an increasing part of the load these days.
Callum O'Reilly:So I was interested in something you mentioned there, David, about there being regional differences. So I was wondering if you could provide a little bit more detail about what the differences are between the energy mixes in, say, The United States and in other regions around the world.
David Wilson:Yes. This is always interesting because it depends a bit on the geographic characteristics of the region plus the historic assets that have been built and as well as the the future aspiration. Seeing how you're in Europe, we'll start with that story, a stronger renewables mix, stronger regulatory settings, and some strong legacy benefits with things like the Nordics having pretty fantastic hydro resources. And, also, relatively recent history with the Ukraine crisis and what happened with Russian gas has driven a big focus on the renewable sector into into Europe today. So pushed a little bit more that way.
David Wilson:And I think one of the big changes in the last couple of years has been the adoption of seaborne LNG. So Europe's become much more connected to the gas systems around the world, if you will, or the gas resources but a decreasing part of the overall mix. In The US, very strong natural gas resources. In fact, the strongest network in the world, a massive proven set of gas reserves. And so there's a really strong build out around natural gas to support data centers into the future, and the renewable incentives are backing off quite strongly.
David Wilson:That said, for data centers and electricity in general, renewables is still the lowest cost new build, so we would expect to see that continue to happen at pace. Permitting headwinds and all of those and speed, occupancy, and grid capacity, move that energy, sees a strong appetite for relocated gas fired generation with the data centers. And I think just to give that context, the data centers are enormous. Right? And getting the capacity to handle those, and particularly in The US maybe I'll come circle back to that in a second, just finish the finish the regional piece.
David Wilson:Asia per se is a little bit more coal dominated. Again, it depends country by country. So Australia is which I know quite well, as you can tell from my accent, is moving very quickly to a high renewable setting. China is building out more renewables than anywhere than the rest of the world combined, but it's still coal dominated. So if you wanna sort of take that regional view, Europe increasingly renewables with good legacy of renewables, hydro, and nuclear.
David Wilson:US, still a lot of renewable activity, but natural gas is a huge player in Asia's coal and moving to renewables at the minute. To sort of just bring that into perspective a little bit, we talk about the data centers, and some of them are just phenomenally huge. If we stepped back in time a decade ago, a data center was twenty, thirty, forty, fifty megawatts, and 50 megawatts was big. Today, state of the art is a thousand megawatts or a gigawatt, and we've got sites that are moving to be five plus gigawatts. And how do you put that into perspective?
David Wilson:I was down in Texas the other day talking to a developer there who's looking at putting fiber at those large data centers there. That's 20 gigawatts of scale. The Texas grid today is 75 gigawatts. Right? So we're talking that third of the quarter third of the grid capacity.
David Wilson:So these things are enormous, but they're not uniform, as in they're not just being put everywhere equally across the world. They're quite located typically around several factors, but access to high speed fiber, proximity to the computing need, talented workforce, and increasingly access to energy, not just to the generation, but also the ability to move it, so transmission interconnection. And that over the last few years, all those easy sides, those ones who are sitting there just saying, hey. I've I've got good access to the grid, and there's energy have been consumed. And so people who are looking at new data center sites typically have to solve that problem.
David Wilson:They either need to build new transmission or new generation, and that's a complex evaluation, but people are sitting there going sometimes, a lot of the time, it's easier to build generation on-site co located with it, and that typically, if that's the decision, is usually some form of gas generation.
Callum O'Reilly:So David, you bring me on to my next question. I was going to mention with such phenomenally large data centers being built at the moment, is oil and gas able to keep up with demand, and will it be able to keep up data centers continue to grow and expand?
David Wilson:Yeah. And it's an interesting situation because over the last few decades, if you will, and particularly the last few years, electricity demand has been relatively flat. And it's not that there's hasn't been more electrical things. You can see this move to electric vehicles and electrification of industrial loads, etcetera, but that's been largely offset by efficiency. So you can think about that in a in a home context of heat pumps and efficient lighting and all of these things mean that in they have a little more electronic things, you're actually not using more load.
David Wilson:But the data centers really changed that. And so if you've been looking at the load forecast in a lot of these regions, they were forecast to be flat or growing a couple of percentage points a year. Data centers really changed that, and they came a bit out of the blue. No one foresaw this even five years ago, just how fast this would this would ramp up. So can the the oil and gas industry support the demand?
David Wilson:From the supply side, yes. Particularly, there's a very strong set of resources and supply opportunities sitting here in The US at the minute, and there's plenty of opportunities to meet that demand, and that's true around the world with the seaborne LNG or local resources. So in the medium term, I don't think there's any supply shortage, which is good news.
Callum O'Reilly:So if there's not a supply shortage, David, are there any barriers that are currently facing oil and gas in accessing these data center facilities?
David Wilson:I think a slightly different perspective of that is that most of the large data center providers or users are aiming for a net zero future. So it's not necessarily a shortage of fossil fuels, if you will, be that coal fired generation or the oil and gas side. It's that ability to hit emissions aspirations for these organizations in the talk more on the medium term for that. So there's various different schemes people are using to offset the emissions that they're doing, but ultimately, they aspire for a net zero set of technologies, which, obviously oil and gas can be part of that mix through companion technologies. It's just getting the economics of all of that to work.
Callum O'Reilly:So as you mentioned, David, data centers are pushing for net zero emissions. So I was wondering what role low carbon gas, for example, renewable natural gas or hydrogen or perhaps even CCS equipped generation can play.
David Wilson:Yes. And I think there's a role for all of those. Renewable natural gas has some supply constraints around that. So I think that will play a role, but it's limited just because of the ability to put it. CCS is a technology that's been around for quite a while now.
David Wilson:It struggled to scale, and it struggled to scale really for economics. The cost of adding carbon capture to natural gas plants makes it materially more expensive than renewables, typically, for electricity generation. So there's a role for it, there's a mix, but it's not a clear economic winner. And so when people are looking at a portfolio of generation, they're looking at that ability to manage the intermittency of renewables and the, I guess, the dispatchability of the gas plant. And then new technologies that are coming up now, not even new, if you will, but battery storage has become very cheap over the last few years, really surprising everyone with how fast the cost out of that has come.
David Wilson:So that decision making about how much renewables can you get in, how much battery storage, and then the dispatchability of gas and the ability to build all of those makes that calculus a little more complex than it sounds. And then that question of hydrogen that you asked. So hydrogen's playing a bigger role in Europe, partly driven by the emissions regulations. In The US today, particularly with the change changes to the IRA, the inflation reduction actions happening under the Trump administration, the future of hydrogen's a little less little less clear, and we're seeing a lot of those projects slow down. So I think one of the interesting things with this whole space at the minute is that there's dramatic change not only on the demand side.
David Wilson:The technologies are evolving quickly, and the regulatory settings are also changing quickly. So that makes the looking into the future and understanding exactly what will happen more complex than we've faced for many years in this sector.
Callum O'Reilly:Yeah, David, and I wanted to come back to just something you mentioned at the end of your answer there about the recent legislative changes in The US and the uncertainty that it's caused around renewables. So how does that shift the outlook of the energy mix moving forward?
David Wilson:Yes. It's and I think I'm a big believer in in economics rules today here. And so the policy setting can can nudge that around, obviously, incentives, those sorts of mandates. So if we step back and look at that, The US and this sort of varies around the world a little bit. The US has a very compelling opportunity in the near term with natural gas just because it can be deployed.
David Wilson:You're in this sudden increase in load and what can be deployed quite quickly. And so natural gas sounds great, and it is quite compelling. The flip side to that is you can't actually buy a gas turbine in The US for the next five years. The full manufacturing capacity of Siemens, all the usual players is actually already sold. Right?
David Wilson:I'm not saying we won't be able to ramp up more supply and all, but it's not just as easy as saying, hey. I wanna build a do another natural gas plant. You can't buy one. And so in amongst that, I think gas will continue to get built at fastest rate possible because, as it said, every bit of jet you can buy for it is being built. The ability and scale renewables is quite phenomenal as as well.
David Wilson:So just to spill that down, renewables will continue to be built at pace because their economics are compelling. Natural gas, particularly in The US, has a distinct opportunity for farming renewables, but also for just supplying this imminent shortfall of energy.
Callum O'Reilly:So David, I wanted to ask about the AI boom which is driving data centre expansion. How is Energy Exempla adjusting its tools or its models to reflect this fast growing load?
David Wilson:Yes. And and so the way we look at it, it it doesn't really need us to change our tools per per se. We've got a very flexible platform that enables us to look at any technology and mix, but it is changing the the way we look at the future demand forecast. And it's actually an interesting one to to forecast as you look at the scenarios of just how many data centers will be built. And we're in the middle of a hype cycle at the minute, and if, you know, anyone who's been around through the a few of the technology booms knows that these are difficult to forecast.
David Wilson:Will just how much will AI dominate the future? How many data centers will need to be built to do that? Or will the models get more efficient As we saw when Deepsea came out earlier this year, of a sudden everyone's like, maybe you don't need quite as much energy to get a good inference from an AI model. But I think regardless of those, AI is real, it's huge, it's going have a material impact. So the way that we handle that and help our clients think about that is building more scenarios.
David Wilson:So you build a range of what ifs, and you can do that. What if data center adoption's extremely high, medium high, and you go through those and you see what happens with that. And for a lot of our clients, they're trying to understand that uncertainty and at what point you need to make a different decision and what the impact of each of those would be. And we've been actually addressing this issue for or this challenge for quite a few years because even as you think about a renew increasing renewable future, this future becomes more statistical. It's less certain about which asset will be running wherever, and it becomes about building up these statistical outlooks of the future and then understanding how portfolios perform under that.
David Wilson:And I think AI is just another piece of that or the data center load, because it's also true about other loads. How fast will EV adoption be? Will the electrification of heavy transportation, what rate will that happen? The industry switchovers. And so when you're in the energy sector, you're always looking at this substitution that happens, and we've seen it happen over many years as wood moved to oil, and then oil moved to coal, and then a lot of the oil loads been moving to gas, and now we've got renewables in the mix and nuclear and all these other pieces.
David Wilson:So you're always evaluating that piece. The challenges outlined here is that uncertain future and just how fast it'll ramp. So scenarios are the way you handle that, and we find that our clients are looking at an ever increasing number of scenarios now and then positioning themselves to navigate through any of those. What do I do if X, Y or Z happens?
Callum O'Reilly:Yeah, so I guess, David, expanding on that a little bit further, I was wondering what are some of the modelling challenges that this shifting environment that we've been talking about has started to create?
David Wilson:There's some of the challenges. They sort of fall into several buckets from the demand side, as we just discussed there with AI being one of that, the supply side, so how fast will the supply technologies evolve and the costs of those, and then the ability to move energy as well, and then the regulatory overlay. And so I'll just sort of touch on that that supply side piece. So we've seen some pretty radical shifts in supply over the last few years. You can think of it from the natural gas side, the advent of fracking, reduced prices far more than and made the availability of natural gas far greater than anyone suspected in the decades before that.
David Wilson:In the same way that renewables have costed out far faster than anyone thought, and battery storage is now becoming a dominant player to fill the gap that peaking plants would have provided a few years ago. So those pieces are still playing out quite quickly, and you just never know where the next technological breakthrough will be. I think that gets it super interesting. Then the other piece that's particularly relevant for the electricity side of it, and this plays into the natural gas piece in particular, is the transmission capacity. And so what we're seeing in a lot of markets now is that there's transmission bottlenecks.
David Wilson:So just because you might even have energy somewhere, it doesn't mean you can get it to somewhere else because that transmission system is full. And so a lot of the modeling now comes in of how much energy can you get through the system. What would it cost to augment that transmission network? Would it be more sensible to build even more generations, say that gas fired, co located with an asset? Would it be better to build batteries and try and use as much of that transmission capacity twenty four seven, but then using the batteries during the peak pieces?
David Wilson:Those pieces of it are getting much more important and complicated. And and so the people looking to develop projects are tackling a lot more of that side. And then you're looking into an uncertain regulatory future, trying to make decisions that can survive another change into the into the future, and we're seeing some pretty substantial projects get canceled or changed or refactored in the last few months.
Callum O'Reilly:In light of that, David, what are some of your best practices when it comes to navigating these challenges, specifically when it relates to oil and gas?
David Wilson:Well, when it comes to oil and gas, what we've found increasingly, if you step back and look at the energy system a few decades ago, you could have looked at one part of it and got a reasonable answer. And by what I mean by that is you could have looked at the gas network as an individual piece. You could have looked at the electricity network. You could have looked at transportation. And these days, that's no longer true.
David Wilson:You actually need to look at all the pieces together to get the right answer, and you cannot understand natural gas markets without understanding electricity markets. And so this is one of the biggest changes that we've seen is that people need to model all of that together. The supply constraints on the natural gas, the impacts of large gas generating power plant, all the electricity things, so all of that. And so we've seen that evolution that now most large players model both of those concurrently. We call it sector coupling.
David Wilson:Right? And where you you're looking at all these different supply chains together. And we see in The Middle East, they actually model the gas, electricity, water together because water's such a huge load there because they actually make all of their water through any use of energy. And in Europe now, we see all of we support the OEE and NCOG, so the European transmission system operators for gas and electricity, and they model electricity, natural gas, and hydrogen together to understand how those three networks will play. The oil is still a little on the side because it's not quite transport or network constrained, but that's where we see one of the big ships.
David Wilson:So modeling all of this together and then modeling a lot of scenarios and understanding. I sort of described this as people want to understand the topography. You want to understand where there's planes, where nothing much happens. You want to sort of understand the cliffs of despair where, you know, if you end up over there, you fall off and you're in a lot of trouble, and you want to understand the mountains of profit. And so their job is to try and navigate their organizations to either put up fences so you can't fall off the cliff and build highways, if you will, that get you to those mountains of more favorable conditions.
David Wilson:And that's that's sounds so simple. It's actually a little more sophisticated than that. But the nice piece is in conjunction with this rising complexity, we've also had the rise of cloud computing and all these things that allow us to make much more detailed representations of these networks in the world and go and solve these problems. So in some ways, there's this really nice companion thing happened that as the AI and compute and all of these have gone forward, the complexity of the energy problems gone forward, we've been able to solve both of them hand in hand.
Callum O'Reilly:Right David, a final question from me today and I was just wondering if you could give us an idea on where you think the oil and gas industry's role in the data center ecosystem will be in the next five to ten years?
David Wilson:Yes. Well, I still think there'll be a backup need, is discussed earlier will be primarily delivered by oil in some form. I think natural gas generation is going to be a huge feature, particularly in North America for the foreseeable future. And then I think around the rest of the world, there's gonna be much more localized around what generating assets are available in each of those localities, but but particularly the gas side of the oil and gas will continue to play a big role in data centres for at least the next decade.
Callum O'Reilly:Great, David, thank you so much for joining us today. We really appreciate your time and expertise on this obviously fast moving and fascinating area of the industry so thank you very much.
David Wilson:Thanks Killam, really appreciate it.
Callum O'Reilly:So my thanks again to David for joining us for this episode of the Hydrocarbon Engineering Podcast. As today's conversation has shown, data centers sit at the heart of our increasingly digital world and the energy demands driving them are only set to grow. Oil and gas continues to play a vital role in meeting those needs while low carbon solutions and advanced modeling tools are helping the industry adapt to a changing landscape. Thanks for listening to this episode. Please remember to like and subscribe wherever you get your podcasts.
Advert:The Hydrocarbon Engineering Podcast is brought to you by Owens Corning Foam Glass Insulation. From managing vapor drive and mitigating corrosion risk to maintaining thermal performance and supporting safety on the jobsite, the insulating system plays a critical role in high performing hydrocarbon processing facilities. Learn more about how foam glass insulation contributes to the design of high performing insulating systems at cryogenic facilities at ww.owenscorning.com/foamglasslngstudy. That's www.owenscorning.comfoamglaflngstudy.