DAVID BLACKMON: AI Faces Chicken-And-Egg Conundrum

Which came first, the chicken or the egg? It’s one of the grand conundrums of history, and it is one that is impacting the rapidly expanding AI datacenter industry related to feeding its voracious electricity needs.

Which comes first, the datacenters or the electricity required to make them go? Without the power, nothing works. It must exist first, or the datacenter won’t go. Without the datacenter, the AI tech doesn’t go, either.

Logic would dictate that datacenter developers who plan to source their power needs with proprietary generation would build it first, before the datacenter is completed. But logic is never simple when billions in capital investment is at risk, along with the need to generate profits as quickly as possible.

Building a power plant is a multi-year project, which itself involves heavy capital investment, and few developers have years to wait. The competition with China to win the race to become the global standard setters in the AI realm is happening now, not in 2027, when a new natural gas plant might be ready to go, or in 2035, the soonest you can reasonably hope to have a new nuclear plant in operation.

Some developers still virtue signal about wind and solar, but the industry’s 99.999% uptime requirement renders them impractical for this role. Besides, with the IRA subsidies on their way out, the economics no longer work. (RELATED: Big Tech Reportedly Gobbles Up Land For Massive Data Center In Suburbs)

So, if the datacenter is the chicken in this analogy and the electricity is the egg, real-world considerations dictate that, in most cases, the chicken must come first. That currently leaves many datacenter developers little choice but to force their big demand loads onto the local grid, often straining available capacity and causing utility rates to rise for all customers in the process.

This reality created a ready-made political issue that was exploited by Democrats in the recent Virginia and New Jersey elections, as they laid all the blame on their party’s favorite bogeyman, President Donald Trump. Never mind that this dynamic began long before Jan. 20, when Joe Biden’s autopen was still in charge: This isn’t about the pesky details, but about politics.

In New Jersey, Democrat winner Mikie Sherrill exploited the demonization tactic, telling voters she plans to declare a state of emergency on utility costs and freeze consumers’ utility rates upon being sworn into office. What happens after that wasn’t specified, but it made a good siren song to voters struggling to pay their utility bills each month while still making ends meet.

In her Virginia campaign, Democrat gubernatorial winner Abigail Spanberger attracted votes with a promise to force datacenter developers to “pay their own way and their fair share” of the rising costs of electricity in her state. How she would make that happen is anyone’s guess and really didn’t matter: It was the tactic that counted, and big tech makes for almost as good a bogeyman as Trump or oil companies.

For the Big Tech developers, this is one of the reputational prices they must pay for putting the chicken before the egg. On the positive side, though, this reality is creating big opportunity in other states like Texas. There, big oil companies Chevron and ExxonMobil are both in talks with hyperscalers to help meet their electricity needs.

Chevron has plans to build a massive power generation facility that would exploit its own Permian Basin natural gas production to provide as much as 2.5 gigawatts of power to regional datacenters. CEO Mike Wirth says his team expects to make a final investment decision early next year with a target to have the first plant up and running by the end of 2027.

ExxonMobil CEO Darren Woods recently detailed his company’s plans to leverage its expertise in the realm of carbon capture and storage to help developers lower their emissions profiles when sourcing their needs via natural gas generation.

“We secured locations. We’ve got the existing infrastructure, certainly have the know-how in terms of the technology of capturing, transporting and storing [carbon dioxide],” Woods told investors.

It’s an opportunity-rich environment in which companies must strive to find ways to put the eggs before the chickens before ambitious politicians insert themselves into the process. As the recent elections showed, the time remaining to get that done is growing short.

David Blackmon is an energy writer and consultant based in Texas. He spent 40 years in the oil and gas business, where he specialized in public policy and communications.

The views and opinions expressed in this commentary are those of the author and do not reflect the official position of the Daily Caller News Foundation.

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