Fall Energy Market Update: What Customers Need to Know
As businesses prepare for 2027 and beyond, energy markets continue to face significant structural changes. While weather remains a key driver of short-term volatility, the bigger story is the evolving balance between growing demand and the infrastructure needed to support it. During IGS Energy's Fall Energy Market Update webinar, our market experts highlighted several trends influencing electricity and natural gas prices.
Key Points at a Glance
- Electricity markets are experiencing tighter supply margins, resulting in increased price volatility and higher capacity costs.
- Data center growth is fundamentally changing power demand across many regional grids.
- Natural gas fundamentals remain relatively strong, supported by growing liquefied natural gas (LNG) exports and increasing demand from new power generation.
- Weather will continue to influence short-term pricing, but many of today's market trends are structural rather than temporary.
- Businesses should proactively evaluate energy procurement and hedging strategies, particularly for contracts expiring over the next 12 to 36 months.
Power market updates: Growing demand is reshaping the grid
One of the most significant developments in power markets is the rapid expansion of data centers. As artificial intelligence (AI), cloud computing, and digital infrastructure investments accelerate, electricity demand is levels the grid hasn't experienced: In 2023, data centers consumed about 4.4% of total U.S. electricity, and that figure is expected to rise to between 6.7 and 12% of total U.S. electricity by 2028.
Recent summer market conditions highlighted how quickly tightening supply reserves can affect prices. During periods of high heat this summer, PJM experienced some of its highest electricity demand in more than a decade. The result was increased volatility and exceptionally high wholesale power prices for customers in the region.
Capacity costs continue to rise
The region's latest capacity auction reinforced concerns about long-term reliability. Auction results indicated that projected generation resources fell short of reserve requirements, signaling continued constraints through 2029 and beyond.
For businesses, this means capacity charges are likely to remain elevated for several years. Capacity costs are increasingly reflecting the challenge of ensuring sufficient generation resources are available during periods of peak demand.
Data centers remain a major market driver
While new generation projects are progressing through interconnection queues, many still face hurdles including permitting delays, supply chain constraints, and construction timelines. As a result, demand growth is arriving faster than new supply in many regions.
Regulators and grid operators are also exploring ways to allocate reliability costs more directly to large new loads, particularly data centers. Several market reforms are expected over the coming months that could influence how future system costs are distributed among customers.
Natural gas market updates: Strong production meets strong demand
The natural gas market remains supported by robust production, which has grown substantially over the past decade. However, rising production is increasingly being matched by new sources of demand.
One of the largest demand drivers is LNG exports. New export facilities currently under construction are expected to significantly increase U.S. LNG demand by 2030, with the Energy Information Administration (EIA) estimating that exports grow by nearly 30% by 2027, creating a long-term source of support for natural gas prices.
Data centers will drive additional gas demand
Many proposed data center projects are evaluating dedicated natural gas-fired generation to ensure reliability. While announced projects suggest enormous future demand potential, market participants expect actual growth to occur more gradually as projects are built in phases.
Current industry estimates suggest data center-related demand could increase natural gas consumption by approximately 6 to 7 billion cubic feet (Bcf) per day by 2030, a meaningful addition to overall U.S. demand.
Storage remains a risk factor
A major concern highlighted during the webinar is the nation's limited natural gas storage growth relative to increasing demand.
Storage levels play a critical role during extreme winter weather events. When storage inventories are low, prices can rise dramatically. Recent winter cold snaps demonstrated how production disruptions and strong demand can create brief but significant pricing spikes, especially during January.
While additional storage capacity is being developed, those projects will take years to enter service. Until then, winter weather remains a primary source of price risk.
Takeaways for businesses
Energy customers are operating in a market that looks significantly different from just a few years ago.
On the power side, tighter reserve margins, growing data center demand, and rising capacity costs are creating a new pricing environment characterized by elevated volatility and higher long-term costs. Meanwhile, natural gas markets continue to benefit from strong supply growth, but increasing LNG exports, expanding power generation needs, and weather-related risks remain important considerations. Forward natural gas prices remain relatively attractive compared with historical trading ranges.
And while near-term weather will continue to influence prices, the larger story is clear: Structural demand growth is reshaping both power and natural gas markets, making proactive energy planning more important than ever.
For businesses, the most important takeaway is that energy strategy has become increasingly valuable. Organizations with upcoming contract expirations should work closely with their energy partner to evaluate risk management options and consider taking advantage of favorable pricing opportunities when they emerge. Working with a trusted advisor who's able to provide proactive strategic advice has never been more important.