The ESG perspective: The rise of the Data Center: Part 2

MARK PATTON, CONTRIBUTING EDITOR 

The Data Center landscape. We previously discussed the impact that Data Centers might have in the oil and gas industry, but as time passes, this impact seems to be much larger than I previously anticipated. We are seeing a Data Center boom in the U.S., as we try to outpace China and the rest of the world in the AI race, both a terrifying and exciting concept in itself.  

What will things look like in 20 years, 50 years—are we going see a jump in innovation, or will we see a self-aware AI that destroys us (just kidding, too many Terminator movies on my playlist)? Regardless, it’s beginning to look like the Permian basin is ground zero for Data Center development. Only Virginia has more Data Centers than Texas, but that is quickly changing. 

What about AI? Now there’s an aspect of AI that is beginning to emerge in oil and gas, with AI being used to enhance seismic data processing, which speeds up exploration and discovery. They are optimizing reservoir simulations to improve extraction; we are seeing predictive modeling for equipment maintenance and emission control; and we are seeing AI working in drilling and completion activity to create more efficiency. I can only imagine this will ultimately reduce cost, but it will require significant Data Center capacity.  

Additionally, there is AI functioning as financial tools and even being used in research and development, adding to the Data Center demand. What do Data Centers need? Land, power and water. The oil field has land, natural gas for power generation and a wastewater called produced water they are trying to figure out what to do with. 

As we see this worldwide race for AI dominance, which is driving the Data Center demand, you will see other industries work to leverage AI. And as they all do, we will likely begin to see AI capacity shortfalls. This is why leveraging natural gas, land and produced water availability is key for oil and gas to secure as much Data Center capacity as possible, because they can leverage that partnership for access to AI capacity. 

How does this impact ESG? So, as this is an ESG column, why am I spending so much time on Data Centers? Well, we already discussed AI’s role in improving efficiency, which reduces energy demand and reduces emissions, but also in modeling and predictive modeling to reduce and identify emissions and leaks and mitigate them quicker.  

I would also imagine that we will see a reduction in flaring, as stranded gas areas become targets for cheap gas for Data Center power. As a result, we will see lower emissions again. We will see a significant increase in in basin power, which should have an impact on the use of portable generators, primarily using diesel fuel for another reduction in emissions.  

Then, finally, we have a new outlet for the billions of barrels of produced water we produce. Mind you, we will have to treat it, but we have a consistent outlet. This is important, as other produced water uses being considered are mostly seasonal, which affects utilization, which increases cost. 

But looking at this through the ESG lens, there is so much more. We already know that there is a sharp rise in natural gas processing occurring and with that, an increase in LNG capacity, as the expectation is that we will see U.S. LNG being leveraged in geopolitical discussions and negotiations. This is already happening, as we try to influence the EU and India to stop buying Russian natural gas and oil, which funds their war effort against Ukraine. Now, to sell in the EU, as I have mentioned before, requires that we meet certain emission standards. All of the efforts I previously mentioned will help us achieve these standards while we improve efficiency.  

What about CO₂? An interesting part of the Data Center boom will be a new, significant CO₂ source. Now, the oil field has had its own CO₂ source in gas plants, but their emissions tend to fluctuate consistently with seasonal gas demand and offtake capacity issues, but now we have a large and more continuous source of CO₂.  

Why is this important? Well, every super major has a carbon group looking to capture and store carbon, but additionally the single largest use of CO₂ is currently found in EOR/waterflooding. And the Trump Administration, under the Big, Beautiful Bill, increased the tax credit for EOR to $85/ton of CO₂. So, we have a homegrown demand for CO₂, while we are also developing CO₂ sequestration wells in the Permian basin and Gulf Coast region. 

Data Centers provide a larger, more consistent source of CO₂ to plan for larger Carbon, Capture, Utilization and Sequestration (CCUS) projects in Texas. Don’t be surprised if Texas becomes ground zero for CCUS, as well. What we haven’t discussed much is continuous development in the use of CO₂ for improving oil recovery in unconventional wells. As this practice develops, we will see a new use for CO₂ in the oil and gas industry. 

The ESG story of the decade. I’ve mentioned this before, but imagine an oil and gas industry that has completely offset it’s carbon footprint and has excess carbon credits to sell and then, in addition to that, is water-positive. In other words, it generates more new water than it consumes. This is possible, as the industry’s water use is decreasing as we recycle more produced water, but now we have a source outside of the oil field that will further increase the reuse of a wastewater. 

It’s interesting that we find ourselves in an era where regulation is being rolled back, and many see that development as a reversal of environmental progress. While that is true, it is also true that the oil and gas industry is making significant progress to roll back emissions and improve its carbon footprint. What will the anti-oil lobby do when they are fighting a Carbon-Neutral and Water-Positive industry? Well, let me tell you, that day is just around the corner. I plan to keep you informed of our progress and see how this movement develops unless, of course, AI becomes self-aware and kills us all. Until next time.