Generic Hero BannerGeneric Hero Banner
Latest market news

DeepSeek undermines AI power demand forecasts

  • Market: Electricity, Natural gas
  • 29/01/25

Unexpected efficiency achievements by Chinese artificial intelligence (AI) company DeepSeek have cast a shadow over a bullish narrative on booming US electricity demand in the coming decade to power data centers running AI software.

Share prices for US independent power producers, natural gas producers and gas pipeline companies fell sharply at the beginning of the week as investors feared DeepSeek's achievement implied significantly less electricity might ultimately be needed to run and train AI models than has been expected. This greater efficiency "calls into question the significant electric demand projections for the US," as the investment case for independent power producers and most integrated utilities is "entirely dependent on data centers," US bank Jefferies said in a note to clients this week.

DeepSeek's apparent ability to achieve comparable results to some major US AI companies using far less computing power — and thus far less electricity — may also be bad news for what is widely expected to be the main fuel source to generate incremental power for AI this decade: natural gas. EQT, one of the largest US gas producers by volume, has called growing power demand from planned data centers the "cornerstone" to its "natural gas bull case." Large US gas pipeline companies like Williams, operator of the Transcontinental pipeline, have also touted recent forecasts showing surging demand for gas-fired power, as greater gas generation would require greater pipeline capacity to move those incremental volumes from wellhead to generator.

DeepSeek's achievement could even cast doubt on the investment case for nuclear power, which has been recast as something of a silver bullet for major technology companies looking to secure zero-emission electricity to enable their AI development efforts. While investors have generally assumed significant premiums for nuclear power, to the tune of more than $100/MWh, new demonstrated efficiencies might cause those assumptions to be questioned, Jefferies said. A loss in power demand for AI data centers may also undercut the investment case for next-generation small modular reactors (SMRs), into which tech companies like Google and Microsoft have poured substantial capital.

Revising the revisions

News of DeepSeek's efficiency achievements are a shock to prevailing expectations for surging US power demand in the coming decade, when those expectations have already been substantially revised over the past year, following decades of stagnant power demand.

US grid operator PJM, which serves 65mn customers and is the largest US electric grid, on 24 January released a report showing significant upward revisions in its peak seasonal power demand projections. Peak summer power demand in PJM's territory in the mid-Atlantic was projected to surge to 210GW in 2035 and 229GW in 2045, substantially steeper than PJM's load forecast just one year earlier, which showed peak summer power demand in PJM rising to 177GW in 2034 and 191GW in 2039. Consultancy firm McKinsey in November forecast US data center power demand to reach 606TWh by 2030, up from 147TWh in 2023. Under this scenario, data centers at the end of the decade would comprise 11.7pc of total US power demand.

If efficiency gains in AI reduce power demand as much as some investors fear, those big forecasts might require big revisions. But efficiency improvements can go two ways — they can reduce demand for fuel, or simply increase output. In the case of AI, more efficient operations could be exploited to accelerate the development of more powerful AI models — using the same amount of power that was previous expected, but to far greater effect. That latter explanation is why, "despite uncertainties," FactSet head of power markets Matthew Hoza tells Argus he remains "bullish" on power demand growth in the coming years.

"With AI's increasing integration into company tech stacks and its growing presence in daily life through AI agents, we anticipate continued growth in AI adoption and the resulting power needs," Hoza said.


Sharelinkedin-sharetwitter-sharefacebook-shareemail-share

Related news posts

Argus illuminates the markets by putting a lens on the areas that matter most to you. The market news and commentary we publish reveals vital insights that enable you to make stronger, well-informed decisions. Explore a selection of news stories related to this one.

News
24/02/25

Italy's Saipem to merge with Norway's Subsea 7

Italy's Saipem to merge with Norway's Subsea 7

London, 24 February (Argus) — Italy's Saipem and Norway's Subsea 7 have agreed to merge, creating a global energy services company with revenues of around €20bn/yr ($21bn/yr) and an order backlog of €43bn. The move is designed to create the scale to tackle large and complex energy projects focused on engineering and construction (E&C) but also on energy transition projects such as wind and carbon capture. Saipem held talks with Subsea 7 over a possible tie-up several years ago but failed to reach an agreement. "The combination will give us a scale that is more in harmony with the magnitude of the projects in offshore energy for oil and gas and renewables industries," said Kristian Siem, chairman of Subsea 7. Under the merger, Subsea 7 will be folded into its Italian rival, with shareholders of the Norwegian company receiving 6.688 Saipem shares for each share they own, along with an extraordinary dividend of €450mn. Each set of shareholders will hold 50pc of the new company on completion. Saipem's largest shareholders — oil and gas firm Eni and state lender CDP — and Subsea 7's largest shareholder Siem Industries have all entered into a separate agreement to support the deal. The new company, Saipem 7, will have a fleet of more than 60 vessels which management says will give it the flexibility to better respond to client requests. "The new company is very, very much an offshore E&C company," said Subsea 7 chief executive John Evans, noting that over 80pc of its operating income comes from this segment. "The two fleets are very compatible and complementary and will allow clients to have a single global service provider to provide everything from ultra-shallow water in the Middle East to ultra-deep in some of the newer provinces," he said. Asked if the new company would be asset light by leasing more of its vessels, Evans said the model of combining older company-owned ships and leased units would continue. "You have to remember that with our backlogs we will be very busy for the next 2-3 years," he said. The merger is expected to generate annual synergies of around €300m in the third year after completion, driven in large part by fleet optimisation and procurement. It is scheduled to close in the second half of 2026 with a binding merger agreement expected mid-2025. Saipem 7 will be listed in both Milan and Oslo and will be headquartered in Milan, although the offshore E&C business will be run as a separate business based in London. Saipem chief executive Alessandro Puliti, who will take over the role of chief executive at Saipem 7, said any decision to spin off the offshore E&C division at a later stage would be evaluated on an opportunistic basis. Puliti said the new company is expected to pay a dividend of at least 40pc of free cash flow after repayment of lease liabilities. By Stephen Jewkes Send comments and request more information at feedback@argusmedia.com Copyright © 2025. Argus Media group . All rights reserved.

Find out more
News

Republicans target US energy rules for disapproval


21/02/25
News
21/02/25

Republicans target US energy rules for disapproval

Washington, 21 February (Argus) — Republican leaders in the US House of Representatives hope to disapprove at least seven energy-related measures issued under former president Joe Biden using a filibuster-proof process created under the Congressional Review Act. House majority leader Steve Scalise (R-Louisiana) on Thursday released a list of 10 rules that his party has prioritized as "potential targets" for disapproval votes, which require only a simple majority to pass in each chamber. Republicans previously used the law in 2017 to successfully unwind more than a dozen rules, and they hope to do so again to repeal Biden-era rules they say will unnecessarily raise costs on businesses and consumers. A US Environmental Protection Agency (EPA) regulation that implements a $900/t charge on oil and gas sector methane leaks is among the rules that Republicans want to disapprove. If those implementing rules are scrapped, it would provide a temporary reprieve from a 31 August deadline for operators having to pay billions of dollars in potential fees on methane emitted in 2024. Republicans hope to vote later this year to permanently end the methane charge, which was created by the Inflation Reduction Act. House Republicans also hope to disapprove an offshore oil and gas safety rule for drilling in deepwater "high pressure, high temperature" environments that Scalise's office says will increase "burdens on energy operations". Other rules that Republicans will target for disapproval are energy conservation for gas water heaters, energy efficiency labeling standards and air pollution restrictions on rubber tire manufactures. Two of the energy measures House Republicans say they plan to target might not qualify for disapproval under the Congressional Review Act, which can only be used on a "rule". The first is a waiver that would allow California to boost in-state sales of electric vehicles and plug-in hybrids, and that President Donald Trump's administration has tried to make eligible for repeal. The second is the US Commodity Futures Trading Commission's decision to release voluntary guidance for exchanges that allow trading of carbon offset futures. By Chris Knight Send comments and request more information at feedback@argusmedia.com Copyright © 2025. Argus Media group . All rights reserved.

News

Freeze cuts Oklahoma oil and gas output


21/02/25
News
21/02/25

Freeze cuts Oklahoma oil and gas output

New York, 21 February (Argus) — Frigid weather in Oklahoma this week has shut in about a third of state oil and natural gas production, according to analysts and pipeline flow data. About 35-40pc of daily oil and gas output in Oklahoma have been lost to freeze-offs from 19-21 February, Energy Aspects analyst David Seduski told Argus . That amounts to cuts of about 150,000 b/d of crude and 2.5 Bcf/d (71mn m³/d) of gas over the period relative to average daily production in the state, US Energy Information Administration data show. The drop was observable in publicly available data for most interstate pipelines across the state, including Kinder Morgan's Natural Gas Pipeline Company, Howard Energy Partner's Midship Pipeline and Energy Transfer's Panhandle Eastern Pipe Line Company and Enable Gas Transmission pipelines, FactSet energy analyst Bailey McLaughlin said. Production will probably continue to be lost through the weekend as cold weather lingers in the state. Freeze-offs occur when temperatures drop low enough to prevent oil and gas production from reaching the wellhead by causing the water contained in the oil and gas stream to freeze. Freeze-offs in Oklahoma typically occur when temperatures fall below 22°F (-6°C), McLaughlin said. This is a higher threshold than the temperature required to curtail output in colder producing regions such as North Dakota, which has also lost production to freeze-offs in recent weeks. The spot gas price at ANR Oklahoma, a regional trading hub on TC Energy's ANR Pipeline, on Thursday surged to $7.715/mmBtu, double the week-earlier price and the highest since 17 January. By Julian Hast Send comments and request more information at feedback@argusmedia.com Copyright © 2025. Argus Media group . All rights reserved.

News

German power industry split on capacity market design


21/02/25
News
21/02/25

German power industry split on capacity market design

London, 21 February (Argus) — Stakeholders in the German power market are divided on how best to implement a capacity market in Germany, or whether it is needed at all, Argus heard on the sidelines of the E-World conference in Essen last week. Instead of entertaining the "misleading" debate over centralised versus decentralised mechanisms, in which the government tries to "delegate accountability for security of supply", what is really needed is "centralised accountability with decentralised assets", Stefan Joerg-Goebel, senior vice-president for Germany at utility Statkraft, said. "The market should be centrally organised but technologies bidding into the market should include, for example, decentralised demand-side response and batteries," he said. But "only the state can really secure supply". Transmission system operator Amprion prefers a centralised capacity segment with a "local component" over the combined capacity market proposal, according to Peter Lopion, consultant in the firm's international regulation management and market development team. He emphasised the importance of knowing "when and where" power plants will come on line. Amprion also stressed that "incentives for grid-serving behaviour" are needed for batteries in particular . In contrast, a decentralised capacity market — not too dissimilar to that of France — is the "best solution" for Germany, although it would first need to adapt to the "German reality", Davide Orifici, director of public and regulatory affairs at energy exchange Epex, said. Such a system would "better help to integrate flexibility" and "further develop demand response", he said, adding that the impression that a centralised system would be simpler is "false". And a decentralised element is "crucial" to "fully leveraging the potential of the demand side", according to Jan Bruebach, managing director at utility MVV. Nevertheless, the addition of the centralised element would add "long-term security" and thus the German energy ministry BMWK's combined proposal is "fine". And while not specifying a particular design, "something at least similar to a capacity market" is important for security of supply and to "provide incentives to hold capacity on stand-by" during periods of low renewable generation, said Andre Jaeger, senior vice-president of product management at trading and risk management firm Ion Commodities. Kerstin Andreae of energy and water association BDEW agreed at a press conference that Germany "needs" the transition to a capacity market. But Peter Reitz, chief executive of energy exchange EEX, does not see the introduction of a capacity market in Germany as being essential. "The same effect can be achieved much more cheaply by introducing the obligation to deliver into the energy-only market," he said, although a decentralised market would "interfere the least with liquidity". And the introduction of a capacity market in Germany would be "costly", Andy Sommer, head of fundamental analysis and modelling at utility Axpo, said. The costs would probably be absorbed by grid operators and the state, and eventually offloaded on to end-consumers, he said. Energy ministry BMWK in August opened a consultation on the country's future power market system, with four options to finance controllable power capacities: a capacity-hedging mechanism through peak price hedging, a decentralised capacity market, a centralised capacity market, and finally, the ministry's preferred option of a "combined capacity market". Despite the deadline for member states to incorporate the EU-mandated electricity market design having passed on 17 January, the design will "probably" be implemented by the next government, BMWK deputy director Andre Poschmann said at an industry event last month . The capacity market question is likely to draw the most political attention after the federal election on 23 February, Joerg-Goebel said, adding that the successful continuation of the coal phase-out — which is currently an "uncomfortable issue" for market participants — can be "fixed" only with new capacity. And without a capacity mechanism, it will be "very difficult" to invest in new peak generation plants, Bruebach said, with Lopion adding that the coal phase-out is "dependent on" new capacity mechanisms. A bidding zone split would harm liquidity And the decision over whether to split Germany into multiple bidding zones remains a concern, with Argus having heard a general consensus that a bidding zone split would negatively affect liquidity in power trading. Larger price zones acting as a "larger mass" are better for liquidity, according to Reitz, citing the German-Austrian bidding zone split and subsequent reduction in Austrian power liquidity. A split would cause "disruption" to the entire market, owing to regulatory changes and the loss in liquidity, agreed Joachim Bertsch, senior business development manager at utility RWE, while Bruebach said it would "crush" liquidity, disadvantage smaller market participants and drive up costs for industries in the south of the country. While BMWK in August rejected the "reconfiguration" of the single German-Luxembourg bidding zone , the "pressure" to introduce multiple bidding zones will intensify if grid expansion does not, according to Joerg-Goebel, while Parasram said he believes "some form of split" will happen. By Bea Leverett Send comments and request more information at feedback@argusmedia.com Copyright © 2025. Argus Media group . All rights reserved.

News

Uruguay eyes oil, gas E&P within energy transition


21/02/25
News
21/02/25

Uruguay eyes oil, gas E&P within energy transition

Montevideo, 21 February (Argus) — Uruguay's state-run Ancap has hopes for an offshore oil or gas discovery, even as the country gears up for its second energy transition. Uruguay has had only three exploratory wells drilled in its history, two in 1976 and one in 2017, and they all came up dry. Companies have completed 13,000 km² of 2D and 41,000 km² of 3D seismic testing this century. Today, its seven offshore blocks have contracts, plans are underway for a new round of seismic testing and one company, US-based APA, wants to spud an exploratory well in its wholly operated block 6 in late 2026 or early 2027. "For the first time in history, we have contracts in place for all the blocks and there is a great deal of interest that resources can be found" in Uruguay, Santiago Ferro, Ancap's energy transition manager, told Argus . A public hearing on seismic testing was held 13 February and the environment ministry is reviewing proposals for permits. Ferro said seismic testing will only be done in areas lacking data. "We want to take advantage of existing information and complement it with new data to encourage drilling," he said. The plan is for approximately 5,000 km² (1,930 mi²) of new seismic testing on two areas — block 1, operated by Chevron and UK-based Challenger Energy Group, and block 4, operated by Shell and APA. The work will likely happen in the final quarter of this year. Ancap's plans will unfold under the new left-wing government of president-elect Yamandu Orsi, who takes office on 1 March. The Oris administration is committed to deepening Uruguay's energy transition. It already has one of the greenest power grids, with 99pc of power coming from renewables, and the Orsi government wants to guarantee electrification of the transportation sector. He will arrive at his inauguration in an elective vehicle as a sign of the government's commitment. The administration wants to decarbonize transportation in 10 years, which will require incentives for vehicles and investment in additional renewable power, principally solar energy. It has not taken a public stand on oil and gas exploration or what it would do if recoverable resources were discovered. By Lucien Chauvin Send comments and request more information at feedback@argusmedia.com Copyright © 2025. Argus Media group . All rights reserved.

Generic Hero Banner

Business intelligence reports

Get concise, trustworthy and unbiased analysis of the latest trends and developments in oil and energy markets. These reports are specially created for decision makers who don’t have time to track markets day-by-day, minute-by-minute.

Learn more