Demand for Nat Gas Spikes Prices, and Creates Market for Coal

In the evolving landscape of global energy, 2025 has marked a pivotal shift where surging demand for natural gas—fueled by artificial intelligence (AI) data centers, liquefied natural gas (LNG) exports, and seasonal weather patterns—has driven prices upward, inadvertently breathing new life into coal-fired power generation. As the world grapples with the dual imperatives of technological advancement and energy security, this dynamic is reshaping markets, investment strategies, and consumer costs. This article explores these interconnected trends, drawing on recent data and forecasts to provide a comprehensive view.

AI’s Insatiable Appetite for Electricity

The rapid proliferation of AI technologies has supercharged electricity demand, particularly from data centers that power everything from machine learning algorithms to cloud computing. According to recent analyses, data centers accounted for about 4% of total U.S. electricity consumption in 2024, with projections indicating this could more than double by 2030.

Globally, electricity demand from data centers is expected to surge to around 945 terawatt-hours (TWh) by 2030, more than doubling from current levels.

This boom is particularly acute in the U.S., where AI-driven data centers are poised to increase natural gas production needs by 10%-15% over the next five years to meet power requirements.

Natural gas, as a reliable and relatively clean fuel for electricity generation, has become the go-to source for many new data center projects. Studies suggest that data center power demand could grow by more than 10,000 megawatts (MW) by 2030, equivalent to nearly 2 billion cubic feet (Bcf) per day of natural gas if used for power generation.

This integration of AI with energy infrastructure not only amplifies natural gas consumption but also ties tech growth directly to fossil fuel markets.The Spike in Natural Gas Prices: Key Drivers and TrendsNatural gas prices have experienced significant volatility in 2025, with benchmarks like the Henry Hub spot price projected to average $3.79 per million British thermal units (MMBtu) for the year, a 20% increase from prior estimates.

Recent surges have pushed prices to a 35-month high, reaching around $5.06/MMBtu in early December, driven by a combination of cold weather snaps boosting heating demand and robust LNG export flows.

Key causes include:Weather-Driven Demand: Colder-than-expected winter weather has led to increased heating needs, causing prices to spike as consumption peaks.

LNG Exports: Growing international demand for U.S. LNG has tightened domestic supplies, with exports contributing to a 9% weekly price climb in late 2025.

Data Center Growth: Emerging electricity demand from AI facilities is now factoring into near-term natural gas forecasts, exacerbating upward pressure on prices.

The U.S. Energy Information Administration (EIA) forecasts that prices for electric power plants could rise 37% annually in 2025, reflecting these sustained pressures.

Resurgence of Coal: A Market Revival Amid High Gas CostsAs natural gas prices climb, coal is experiencing an unexpected comeback in the U.S. power sector. Higher gas costs have made coal more economically competitive for electricity generation, leading to a projected 6% increase (41 billion kilowatt-hours) in coal-fired output in 2025.

Overall, U.S. coal production is anticipated to rise 3% to 526 million short tons (MMst) in 2025, driven by this demand shift.

In key states like Arkansas, Indiana, Michigan, Ohio, South Carolina, and Wisconsin, coal-fired generation has already jumped 26% so far in 2025.

This resurgence is partly due to delayed coal plant retirements and the need to meet rising overall electricity demand, including from data centers. Wholesale electricity prices have spiked 23% in 2025, with further increases expected, underscoring how gas price volatility is propping up coal as a cost-effective alternative.

The Fading of Seasonal Pricing for Natural Gas

Traditionally, natural gas prices exhibit seasonal patterns, peaking in winter due to heating demand and dipping in summer. However, escalating LNG demand is eroding this cyclicality. Global LNG demand is projected to surge 139% between 2024 and 2030, rising by 18.3 Bcf/d to 31.5 Bcf/d.

This constant export pull is expected to sustain year-round demand, potentially flattening seasonal price fluctuations.In 2025, spot gas prices are forecasted to rise amid balanced market conditions and 2% global demand growth, with prices staying relatively high into late 2025 and early 2026 before easing mid-year.

The EIA notes that higher LNG exports will increase U.S. natural gas demand this winter, further diminishing traditional seasonal lows.

As a result, the “golden age of natural gas” may usher in more stable—but elevated—pricing, influenced heavily by international markets.

What Investors Should Look For

For investors eyeing the energy sector in 2025 and beyond, the interplay between natural gas, coal, and AI-driven demand presents compelling opportunities. Key areas include:

Natural Gas Stocks: Companies involved in production, LNG exports, and infrastructure could benefit from price surges. Stocks like Expand Energy have broken out amid climbing prices, with analysts highlighting the “golden age” for natural gas driven by data centers and exports.

Look for firms with strong export capabilities, as U.S. LNG margins tighten but demand grows.
Coal-Related Investments: With coal production rebounding, investors might target utilities or producers in resurgence states. However, this is tempered by long-term clean energy transitions.

Broader Energy Plays: Diversified oil and gas stocks, such as Northern Oil and Gas Inc. (NOG), CNX Resources Corp. (CNX), APA Corp. (APA), and ConocoPhillips (COP), offer exposure to rising hydrocarbon prices.

Natural gas utilities may also see gains from AI policies and attractive dividends.

Clean Energy Balance: While fossil fuels dominate short-term gains, global investment in electricity is set to hit $1.5 trillion in 2025, with clean energy outpacing fossils 2:1.

Investors should monitor policy shifts under new administrations that could favor domestic production.

Sentiment has shifted positively toward natural gas in 2025, with investors returning as market fundamentals strengthen.

Focus on companies with resilient supply chains and exposure to data center growth.

Implications for Consumers

Rising natural gas prices are poised to ripple through to consumers, primarily via higher electricity bills. The EIA expects wholesale electricity prices to climb another 8.6% in 2026 after a 23% increase in 2025, largely due to gas costs setting marginal prices in many markets.

Residential and commercial customers may see modest 4% increases in gas prices, as utilities hedge and pass through costs gradually.

However, with about 40% of U.S. electricity from natural gas, sustained high prices could elevate household energy expenses, especially in winter.

On a brighter note, inflation-adjusted residential natural gas prices are forecasted to drop to $12.00 per thousand cubic feet (Mcf) in 2025, a 22% decline from 2023 peaks, offering some relief amid broader trends.

Consumers in export-heavy regions may feel the pinch more acutely, underscoring the need for energy efficiency measures and diversified sources to mitigate impacts.In summary, the spike in natural gas demand and prices in 2025 is not just a fleeting trend but a harbinger of deeper shifts in global energy dynamics. While it revives coal markets and opens investor avenues, it also challenges consumers to adapt to a more volatile, interconnected energy future.

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