There is a huge amount of news lately pertaining to our industry. Okay, it is really all about AI and the explosion of data centers. The #1 most talked about topic these days is data centers. There is no one in second place. Nothing else seems to matter. Power for data centers will need be the greenest form of energy possible. For data centers, it must also be completely reliable and “behind the meter,” so I know what my primary cost will be over the long term of my project. Wind and solar won’t work because they can’t meet the reliability standards. Nuclear could be an option, but FERC has rejected any co-location projects and selling the power behind the grid is discouraged. The last man standing? Natural Gas. Us to the rescue!
Near-Term Reality. I am a big fan of Chris Wright, one of the smartest people in our industry in my humble opinion. As we have written extensively, virtually everything the current administration is doing to the oil and gas industry is a long-term positive. Long term. I also understand the need to get oil prices down before the midterm elections, which has already been successful, with gasoline down almost 10 percent over the last year, tempering any inflation from other Trump policies. The slowdown in drilling activity reflects today’s lower prices, the time remaining until the elections and the need to be cash flow positive. So, what do you do? Constrain capital spending. This is the result. (See accompanying chart on “Permian Rig Count.”)
They Aren’t Alone. Another $25 billion data center power project is moving forward. The company will develop a 1.4GW data center campus in Shackelford County, Texas. Vantage is building a complex that will be home to 10 data centers, spanning 3.7 million square feet across 85 acres of buildings. It is expected to open in the second half of next year. The project, named Frontier, will use liquid cooling and utilize a closed-loop chiller system, which requires minimal water for cooling. “Texas has become a critical and strategic market for AI providers. In particular, the launch of our Frontier campus with 1.4GW of GPU compute capacity marks a watershed moment for Vantage.”
In my years of experience, I have seen similar charts and they are always wrong because of some unexpected events like Shale. Take this with a grain of salt.
Now let’s end where we started…with AI and data centers. Crusoe Energy, in partnership with Blue Owl Capital and Primary Digital Infrastructure, is building a 3.4-megawatt center for Oracle and OpenAI just 100 miles away near Abilene. To say this is a growing business is an understatement. That makes three data centers and over $53 billion of spending. Welcome to the new world of power.
Remember back in March when we were happy?
Subscribe to Jim Wicklund’s full e-newsletter, “Things I Learned This Week at…,” distributed weekly via email, by signing up for free at this webpage: https://www.pphb.com/newsletters. Jim is Managing Director / Client Relations and Business Development for investment banking firm PPHB. Leveraging deep industry knowledge and experience, Houston-based PPHB has advised on more than 180 transactions exceeding $11 Billion in total value. PPHB advises in mergers & acquisitions, both sell-side and buy-side, raises institutional private equity and debt, and offers debt and restructuring advisory services. The firm provides clients with proven investment banking partners, committed to the industry, and committed to success.