Supply Chain Bottleneck Gums Up Short-Term Answer For Data Center Energy Woes

The data center industry has embraced natural gas as a near-term solution to its power shortage, but a supply chain bottleneck for gas turbines could throw a wrench in the gears.

Data centers are driving a surge in demand for natural gas. A growing number of campuses are being planned that aim to use on-site or behind-the-meter gas generation either as their primary power source or as backup power. At the same time, utilities are developing new natural gas power plants to increase the capacity of electrical grids suddenly overwhelmed by soaring energy demand driven in large part by data centers.

However, an increasingly acute shortage of gas turbines may limit data centers’ turn toward natural gas.

Turbine manufacturers have been swamped by a sudden surge in orders, with lead times for customers now extending past 2029, according to a report from climate news site Heatmap. Multiple gas power plant projects in the U.S. have been canceled since the start of the year due to developers’ inability to procure this equipment. 

This bottleneck is unlikely to dissipate anytime soon, as the three largest turbine manufacturers have all indicated that they have no plans to ramp up production in the months ahead. This decision was reportedly driven by concern that a significant share of data center-induced demand for gas generation will never materialize. 

But this could be something of a self-fulfilling prophecy. Manufacturers are now advising developers to plan as far as eight years in advance to procure equipment, but that may not fly in a data center industry that is mainly interested in natural gas as a faster option than waiting five to 10 years for power from a utility. 

“The reality of the situation is that it takes a long time to build gas,” Doug Lewin, CEO of Texas-based Stoic Energy Consulting, told Latitude last month. “And the costs are spiraling upwards … not just like in line with even high inflation.”

With the booming data center industry’s electricity consumption straining regional power grids, developers and utilities are increasingly looking to new natural gas generation as the fastest path to securing power. Data center growth could add 50 gigawatts of new gas generation to U.S. grids by 2030, according to S&P Global, single-handedly raising power sector gas demand in the U.S. by almost 17%.

Tech behemoths like Meta and OpenAI are building campuses alongside gas plants capable of providing the hundreds of megawatts they need. Meanwhile, some of the most prominent third-party data center operators — firms like EdgeConneX and Vantage Data Centers — are also pursuing large-scale behind-the-meter gas power solutions.

Bullish predictions about the prevalence of self-powered data centers — mostly fueled by natural gas — have abounded since the beginning of the year, with one study projecting that 30% of all data centers in the U.S. will generate most of their electricity on-site by 2030. 

But this rapid adoption of natural gas generation may be derailed by an impending mismatch in supply and demand.

GE Vernova, Siemens Energy and Mitsubishi Power, the three manufacturers that account for the bulk of new natural gas turbines, haven't kept up with the sudden spike in orders.

GE Vernova saw turbine orders rise 66% from 2023 to 2024, with last year’s orders alone representing nearly 20 GW of generation capacity, according to Heatmap. Now, close to 90% of the firm’s orders from customers are backlogged, with the firm’s leadership indicating on its most recent earnings call that the backlog is expected to grow further over this year. 

Other manufacturers face similar backlogs for turbine orders and are now advising customers that they should plan seven to eight years in advance to procure equipment, according to climate-focused publication CTVC.

The inability to procure turbines has already caused the cancellations of natural gas projects in major U.S. data center markets. In late February, the U.S. division of French energy developer Engie withdrew its plans for a 930 MW gas plant in Texas — a so-called peaker plant, meant to supply energy only when the Electric Reliability Council of Texas grid needs it most.

Engie also nixed its application with state regulators for a second Texas plant, attributing the decision to cancel both projects to “equipment procurement constraints.” 

Despite this supply chain pinch pushing delivery dates for turbine customers close to the end of the decade, the major turbine manufacturers all indicated on their most recent quarterly earnings calls that they are unlikely to ramp up production to relieve these constraints in the months ahead. 

“I think we have to be very thoughtful to make sure that we don't add too much capacity, even though we are starting to sell slots into 2029,” GE Vernova CEO Scott Strazik said on its Jan. 22 earnings call. “We're going to continue to be very sequential on how we invest.”

Strazik gave multiple reasons why his firm and others are standing pat on production capacity: The companies are facing their own supply chain constraints, and some are also looking to leverage the turbine shortage into revenue by allowing customers to pay a premium to jump the queue and get their turbines faster. 

But there is also a fear of oversupplying the market. Manufacturers are reportedly worried that the surge in demand won’t last and that the generation needs of utilities and the data center sector could be far less than anticipated. Turbine-makers are wary of making big capital investments to expand manufacturing capacity only to have demand tail off and prices plummet. 

If turbine builders are unwilling to bet their futures on the anticipated power needs of the data center sector, they aren't alone in their skepticism.

In the data center industry itself, there is a broad consensus that a large percentage of the data center power requests that have inundated utilities are speculative projects that will never come to fruition. And as Bisnow has reported, a growing chorus of voices across the data center development landscape is increasingly doubtful that many of the planned gas-powered campuses will materialize. 

Whether the data center industry’s long-term appetite for natural gas ultimately lives up to the most bullish expectations, in the short term, the turbine shortage adds to the list of supply chain constraints that have continued to plague the data center industry for the past five years. Shortages of critical equipment that emerged during the pandemic continue to cause delays and extend project timelines. Developers face lead times of a year or more for key items from diesel generators and switchgear to transformers, according to JLL.