AI Data Centres Lock In Gas Power Contracts as Long-Run Demand Bet Overrides Cheap Spot
Developers building power for artificial intelligence are committing to multi-billion dollar natural gas projects despite an oversupplied spot market, reshaping long-run demand expectations.
NYMEX Henry Hub front-month natural gas settled at $3.23 per million British thermal units as of Friday (2026-06-27), the kind of price that historically signals surplus and discourages new supply investment. Babcock & Wilcox is signing contracts anyway. The industrial equipment maker announced in May (2026-05-21) a $2.4 billion design-build deal with Base Electron, an artificial intelligence power developer, for 1.2 gigawatts of gas-fired generation — a transaction that drove the company's backlog up 470% to $2.8 billion.1
The logic behind the contract is straightforward: solar panels do not generate power at night and large language models run around the clock. Natural gas remains the only scalable source of dispatchable baseload that can be deployed fast enough to match the pace of data centre expansion. BloombergNEF projected in May (2026-05-19) that fossil fuels would supply 51% of incremental generation for data centres through 2050, even as the research firm forecast solar becoming the world's largest single power source by 2035.4
The data centre sector's appetite for power has reached a scale that is registering across the broader energy equipment supply chain. Wood Mackenzie estimated that demand for distribution transformers outstripped supply by roughly 10% last year, a shortfall that is delaying projects already under contract.5 Battery storage developers, meanwhile, reported surging inquiries from data centre operators in May (2026-05-18) but warned that grid connection queues running to years and a supply chain heavily reliant on Chinese manufacturers were constraining their ability to respond quickly.6
Some buyers are trying to spend their way past the constraint. Google has committed $1 billion to 100-hour long-duration batteries from Form Energy as part of a recent data centre project, according to BloombergNEF.4 At that price, battery-firmed renewables remain a high-cost option rather than a standard one, which is precisely why gas developers are finding buyers willing to sign long-term agreements even with spot prices depressed.
Data centres already account for more than 1% of global electricity consumption, according to the International Energy Agency, and the AI-specific share within that is rising. As of May (2026-05-19), AI workloads were consuming an estimated 10 to 20% of US data centre energy, with that share expected to grow significantly as inference at scale becomes the dominant use case.3
Babcock & Wilcox's contracted pipeline reflects the magnitude of what developers see coming. Base Electron is evaluating a further 1.2-gigawatt option beyond the existing agreement, and the company described its broader development pipeline as exceeding $12 billion as of May (2026-05-21). Management guided 2026 core adjusted EBITDA at $70 million to $85 million, roughly 80% year-on-year growth, with further upside if additional data centre projects close.1
The tension with current gas market fundamentals is acute. For the week ending around mid-May (2026-05-11), working gas in US storage fell by just 52 billion cubic feet, well below the five-year average withdrawal of 168 Bcf, leaving inventories approximately 141 Bcf above the prior-year level.2 That structural surplus has kept NYMEX front-month prices pinned at $3.23 — low enough to discourage conventional upstream investment while doing nothing to slow the contracted buildout of dedicated data centre supply.
Babcock & Wilcox's own balance sheet captures the risk embedded in this bet. Stockholders' equity stood at negative $131.5 million at the time of the contract announcement, with a 6.50% note refinancing due in 2026.1 A company with negative equity is writing contracts worth multiples of its current market value on the assumption that data centre power demand will materialise in sufficient volume and at sufficient speed.
The question that will determine whether gas retains its central role in AI infrastructure is whether long-duration storage can achieve commodity-scale cost parity before the bulk of data centre capacity additions are locked in. The Form Energy deal is a notable data point. If long-duration batteries move from individual project line items into standard power procurement specifications, the 51% fossil fuel increment in BloombergNEF's 2050 data centre scenario will need to be revised downward. For now, that revision is not in the contracts being signed.4