The AI boom brings opportunities to the oil and gas industry

September 11, 2025

The AI boom brings opportunities to the oil and gas industry

AUTHOR(s)

William "Alex" Love, Robert Royce and Janette Uribe

The history of artificial intelligence

While it feels like a relatively new development, the concept of artificial intelligence (“AI”) dates back decades. In 1950, computer scientist, Alan Turing, who is considered the “father of AI,” published his seminal work, “Computing Machinery and Intelligence.”¹ In this paper, Turing considered the question, “can machines think,” claiming that there is no convincing argument that machines cannot think intelligently like humans.² In 1956, John McCarthy, a professor at Dartmouth, organized a summer workshop to clarify and develop ideas about thinking machines.³ It was during this workshop that McCarthy coined the term “artificial intelligence.”⁴

Over the past eight decades, AI development has made great strides. In the 1960s, George Devol, an American inventor, created the first industrial robot, Unimate.⁵ Unimate was used by General Motors, transporting die castings from an assembly line and welding these parts on auto bodies.⁶ In the mid-1960s, Joseph Weizenbaum, a computer scientist and professor at MIT, developed the ELIZA program, an early natural language processing program designed to mimic human-like conversation using pattern matching and substitution rules to generate responses.⁷ ELIZA was the foundation on which ChatGPT was built. ELIZA was limited in that it lacked human understanding and relied on pre-programmed responses. However, in the 1980s, Rollo Carpenter, an AI developer, created Jabberwacky, which was designed to learn from human input and could simulate natural human conversation.⁸

Today, with ChatGPT, Gemini, and Claude available, AI is more advanced than it has ever been. AI model training currently involves adjusting billions of parameters through repeated computations that require immense processing power.⁹ The solution to this energy demand has been the expansion of AI data centers. An AI data center is a facility that houses the specific IT infrastructure needed to train, deploy, and deliver AI applications and services.¹⁰ AI data centers have advanced network and storage architectures and energy and cooling capabilities to handle AI workloads.¹¹ While the concept of AI data centers is not new, the proliferation of AI data centers has created a unique opportunity for the oil and gas industry.

Natural gas and AI data centers

Natural gas is one of the most reliable sources of energy today, and the infrastructure necessary to produce and transport natural gas to power AI data centers is already in place. The federal government also provides tax incentives to producers of natural gas. Even so, there is still an obstacle that the natural gas industry faces to become the main source of power for AI data centers. To power AI data centers, natural gas needs to be converted to electricity by turbines, which are currently in short supply and very difficult to acquire.

The process by which natural gas becomes electricity

In general, natural gas is drilled, collected, and transported by pipelines to a treatment plant to remove water or waste and then sent to a power plant.¹²

At the power plant, the conversion process can take place by several different means including by using a boiler, combustion turbine, or both. “When using a boiler, water is boiled creating steam that spins a turbine and generates electricity. When using a combustion turbine, pressurized gas turns the blades of a turbine connected to a generator. Magnets spin inside the generator creating an electric current. These methods can be used independently or together. In a combined cycle system, the energy created by one turbine generates more energy in another turbine. After one engine completes a conversion cycle, the heat exhaust is transferred through a heat exchanger. A second engine extracts energy from the heat to begin its own conversion cycle.”¹³

After the electricity is created, it is sent through power lines to be used in our homes or for commercial, industrial, or transportation use.¹⁴

Natural gas pipelines and AI data centers

There are three types of natural gas pipelines: gathering pipelines, transmission pipelines, and distribution pipelines.¹⁵ Gathering pipelines transport the natural gas collected from the wellheads to a central collection point like a storage facility, a processing plant, or a transmission pipeline.¹⁶ Transmission pipelines move high volumes of natural gas from the production and processing plants, storage facilities, and distribution centers.¹⁷ Finally, distribution pipelines deliver natural gas to homes, businesses, and facilities.¹⁸

According to the O/I Fund, some of the largest AI data center projects are in regions with the densest natural gas transmission pipelines like Texas with over 58,500 miles of pipelines, Louisiana with over 18,900 miles of pipelines, and Oklahoma with over 18,500 miles of pipelines.¹⁹

In Abilene, Texas, Project Stargate is a $500 billion joint venture investment between Oracle, Softbank, and Open AI, building AI data centers that are each half a million square feet.²⁰ Project Stargate is planning to build 10 buildings in the Abilene, Texas location.²¹

In Louisiana, Meta Platforms is constructing a 2GW+ AI data center.²² “The $10 billion project will be built on 2,250 acres, housing 4 million sq ft with nine buildings slated to be almost the size of Manhattan. Entergy will spend $3.2 billion to build a 1.5GW gas plant on Franklin Farms as part of a co-location deal . . . or acquire another 1.5GW of solar power elsewhere to offset the carbon emissions.”²³

Finally, in Oklahoma, Core Scientific and AI hyperscaler CoreWeave are building a 100MW facility, and Google has invested over $4.8 billion in its Mayes County, Oklahoma data center campus, expanding it three times since 2007.²⁴

Consequently, the high concentration of pipelines in these regions will give natural gas a competitive advantage in becoming the main source of power for these projects.

Governmental incentives for natural gas

The federal administration has given natural gas companies an increasing free hand to expand their production and supply infrastructure.²⁵ This is good news for midstream companies responsible for transporting natural gas and working to meet the increasing demand of AI data centers.²⁶

The legislation known as the One Big Beautiful Bill Act signed into law on July 4, 2025, by President Donald Trump, includes tax incentives favorable to the oil and gas industry.²⁷ A major incentive is lifting restrictions in the Inflation Reduction Act on tax deductions for intangible drilling costs — often between 60% and 80% of total costs.²⁸

Can turbine supply keep up with the AI boom?

“After years of flat or declining electricity demand, US utilities are projecting rapid growth driven by AI, electrification, and industrial expansion . . . nearly the equivalent of adding a new California, Texas, and New York to the bulk power system.”²⁹

Today, the increased global demand for gas turbines is creating supply chain constraints.³⁰ The issue stems from the ability of the handful of suppliers of the turbines to keep up with demand. Currently, three companies will supply most of the current demand: GE Vernova, Siemens Energy, and Mitsubishi Power.³¹ Due to increased demand, these companies have extended their delivery timelines.³² “Mitsubishi states that turbines ordered today will not be delivered until 2028–2030. Siemens reports a record backlog of €131 billion (US$148 billion). And GE Vernova has announced new turbines will not be available until late 2028 at the earliest.”³³ Thus, given the increasing demand for power consumption, if the supply for turbines does not increase, utilities facing delays in production might be unable to keep up with consumption. Additionally, costs for turbines available for purchase have increased, therefore, inadvertently costing the ratepayer more money.³⁴ However, there are alternatives we can use to help as near-term solutions, including: energy efficiency solutions, virtual power plants, grid-enhancing technologies, clean pre-powering, and hybrid “power couples” sited at existing fossil generator points of interconnection.³⁵ Therefore, despite the short supply of turbines, natural gas is well positioned to meet the current and future demand of AI data centers.

Carbon capture and sequestrations (CCS) for natural gas-powered AI data centers

Introduction

While natural gas-powered electricity is a key component to meet AI data centers’ unprecedented demand for electricity, carbon emissions are a primary concern. Carbon capture and sequestration is paramount to curbing carbon emissions, but carbon capture and sequestration technologies face challenges as they increase project timelines, raise costs significantly, and are highly regulated by federal and state governments. However, regulatory and tax incentives from the federal government are reducing barriers to entry, making gas-powered electricity generation a more attractive option for private sector actors to meet the energy demands of AI data centers.

Background

Carbon capture and sequestration (“CCS”) technologies can capture up to 90-95% of CO2 emissions from large natural gas-fired power plants.³⁶ The US electrical grid emits 340-420 kg CO2e/MWh on average; but when gas-fired power plants are paired with CCS technology, a gas-powered plant emits 80-120 CO2e/MWh on average.³⁷ While renewables and nuclear emit less CO2, gas-powered plants paired with CCS are more dependable and flexible, while also being cost effective at $70-100/MWh compared to $77/MWh for nuclear and $87/MWh for solar.³⁸ Without CCS technology, gas-powered plants cost $37/MWh on average, but CCS is necessary for gas-powered plants to be environmentally sustainable on a large scale. Even at $70-100/MWh, gas-powered plants paired with CCS technology are fiscally competitive with nuclear ($77/MWh) and solar ($87/MWh). Moreover, scale and regulatory incentives will further reduce costs of gas-powered-CCS plants.³⁹

Regulatory environment ripe for investment

Section 45Q federal tax credits

Enacted in 2008, Treasury Regulation § 1.45Q (“Section 45Q”) incentivizes qualified facilities that capture and permanently sequester or utilize carbon emissions, including emissions from natural gas-fired power plants, through federal tax credits.⁴⁰ Under Section 45Q, facilities must begin construction before January 1, 2033 to be eligible to claim tax credits for the 12-year period after the project is placed into service.⁴¹ Specifically, for natural gas-fired power plants, the facility must capture at least 18,750 metric tons per year of carbon emissions, with equipment designed to capture at least 75% of baseline emissions, to qualify for Section 45Q tax credits.⁴²

As previously mentioned, enacted in July 2025, the One Big Beautiful Bill Act (“OBBBA”) modified the structure of Section 45Q tax credits to increase their value for carbon capture developers. Under OBBBA, there is one credit value for projects capturing carbon dioxide from industrial and power facilities ($85 per metric ton) and one value for direct air capture projects ($180 per metric ton), representing the maximum value of carbon credits under previous iterations of Section 45Q.⁴³ Previously, the value of Section 45Q tax credits depended on the end-use of the captured carbon, so tax credits for capturing carbon from industrial and power facilities varied from $60 to $85 per metric ton; and tax credits for direct air capture projects varied from $130 to $180 per metric ton.⁴⁴ Further under OBBBA, Section 45Q tax credits are available as a direct payment or transferable to a third party, allowing developers to receive either a direct refund or to monetize their credits via sale.⁴⁵ Finally, unlike previous iterations of Section 45Q, OBBBA adjusts Section 45Q tax credits for inflation beginning in 2027 so that the credits do not lose value over time.⁴⁶ Overall, OBBBA makes Section 45Q tax credits for CCS projects more valuable than ever before.

State primacy

Currently, the most stringent regulatory hurdle for CCS – Class VI well permits – is at an all-time low. Carbon, including CO2 emissions from gas-fired power plants, must be stored in a Class VI well, which is the most regulated classification of disposal well by the U.S. Environmental Protection Agency (“EPA”).⁴⁷ The EPA must grant a state primacy over Class VI wells, meaning that the state has authority to regulate and permit Class VI wells under the EPA’s requirements.⁴⁸ To date, only Louisiana, North Dakota, West Virginia, and Wyoming have been granted primacy by the EPA, meaning these are the only states that can permit Class VI wells for carbon sequestration.⁴⁹

As part of the EPA’s initiative surrounding CCS, the federal government has expedited the primacy application process.⁵⁰ In July 2025, the EPA approved Texas’s application for primacy, meaning that the Texas Railroad Commission will be able to regulate and permit Class VI wells for carbon sequestration in the state, possibly as soon as December 2025.⁵¹ Texas primacy is a major development in CCS because captured carbon now can be sequestered in Texas, rather than having to be transported long distances to another state that has primacy.⁵² For natural gas-powered plants, the ability to sequester carbon much closer to the location of the plant itself would drastically decrease transportation costs.⁵³ As result, Exxon, Oxy, and other supermajors in the oil and gas industry recently announced construction projects for natural gas-powered plants in Texas, citing proximity to natural gas sources as a key factor; but now, the ability also to sequester carbon in Texas provides another advantage for siting natural gas-powered plants in Texas.⁵⁴

Impact on AI data centers

The OBBBA’s sweeping reforms to the Section 45Q tax credits establish a uniform and substantially more valuable incentive framework for carbon capture, making gas-powered plants an attractive option to provide electricity to AI data centers. By integrating carbon capture and sequestration technologies into data center infrastructure, operators and investors can maximize available federal carbon capture incentives, while simultaneously managing exposure to long-term cost and policy uncertainties.

As AI data center decarbonization becomes a strategic and regulatory imperative, pairing natural gas power with advanced carbon capture and sequestration technologies offers robust, near-term solutions for emissions reduction, operational reliability, and flexible output capacity. The expansion of tax credits and regulatory incentives has tilted the financial equation toward aggressive adoption of natural gas-powered electricity generation, and carbon capture and sequestration make gas-powered plants environmentally sustainable for the future.

Opportunities for oil and gas professionals

While most people associate the proliferation of AI data centers with major tech companies such as Amazon, Google, and Microsoft, behind the scenes, oil and gas professionals have, and will, play a vital role in ensuring the viability of these AI data centers. Landmen and attorneys are uniquely positioned to both leverage their current skillsets and develop new ones.

Traditionally, landmen have been crucial in the success of oil and gas operations. Their duties include negotiating leases with landowners, title research, regulatory compliance, and coordination between geologists, engineers, and other experts to support exploration and production efforts. Landmen are experts on the ground that ensure the success of oil and gas projects. This expertise will be valuable to tech companies when they are identifying potential sites for AI data centers. While AI and machine learning algorithms will play a significant role in site selection and data analysis because they can predict the best locations for energy projects by analyzing vast amounts of data, landmen can become subject matter experts on platforms such as LandApp, a tool developed by LandGate, which provides analytics for renewable energy and data center developers.⁵⁵

Operating AI-driven data centers presents complex legal challenges and attorneys will be called upon to address those challenges. Attorneys will be asked to guide operators through energy procurement negotiations, environmental compliance, data security, and intellectual property protection.⁵⁶

Securing permits for energy infrastructure and facility expansion involves navigating local zoning laws, environmental impact assessments, and community engagement processes.⁵⁷ Legal disputes will likely arise when location regulations conflict with large-scale energy projects.⁵⁸ Proposed regulations could impose energy efficiency standards, carbon reporting requirements, or even limits on high-energy-consuming AI applications.⁵⁹ Attorneys should stay informed about emerging energy and AI regulations, as governments are beginning to scrutinize the energy impact of AI technologies.⁶⁰

The proliferation of AI data centers across the country has created a unique opportunity for the oil and gas industry. Due to the immense energy required to power AI data centers, operators have turned to natural gas as an energy solution. This means that oil and gas professionals are uniquely positioned to leverage their ability to negotiate deeds and leases for the land on which AI data centers will be built and the natural gas operations that will power them. Finally, as the use of AI becomes more prevalent, so will legal disputes that arise from environmental protection, data security, and intellectual property protection. As a result, attorneys will be called upon to provide guidance and expertise to help operators navigate these issues in an ever-changing environment.

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2
Jet New, A Summary of Alan Turing’s Computing Machinery and Intelligence, MEDIUM (Aug. 12, 2020), https://medium.com/@jetnew/a-summary-of-alan-m-turings-computing-machinery-and-intelligence-fd714d187c0b.
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40
TREAS. REG. § 1.45Q, et seq.
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Credit for Carbon Oxide Sequestration, INTERNAL REVENUE SERVICE (last updated May 29, 2025), https://www.irs.gov/credits-deductions/credit-for-carbon-oxide-sequestration.
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CARBON DIRECT, supra note 36.
48
See EPA Proposes to Approve Texas’ Application to Administer Class VI Underground Injection Well Program, U.S. ENVIRONMENTAL PROTECTION AGENCY (June 9, 2025), https://www.epa.gov/newsreleases/epa-proposes-approve-texas-application-administer-class-vi-underground-injection-well.
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See id.
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CARBON DIRECT, supra note 36.
54
See Steel, Ammonia and AI? Oh my! What Can’t Our CCS Help Decarbonize?, EXXONMOBIL (Dec. 11, 2024), https://corporate.exxonmobil.com/what-we-do/delivering-industrial-solutions/carbon-capture-and-storage/steel-ammonia-ai-what-cant-ccs-help-decarbonize; Carolos Nogueras Ramos & Alejandra Martinez, Texas Oil and Gas Companies Want State Oversight for Carbon Dioxide Injection, THE TEXAS TRIBUNE (Feb. 6, 2025), https://www.texastribune.org/2025/02/06/texas-primacy-carbon-capture-oil-gas/; Carlos Nogueras Ramos, Texas Energy Company Wins First-of-its-kind Permit to Suck Carbon Out of Air, Store Underground, THE TEXAS TRIBUNE (Apr. 8,2025), https://www.texastribune.org/2025/04/08/texas-direct-carbon-capture-oxy/.
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William "Alex" Love

Robert Royce

Janette Uribe

Janette Uribe specializes in upstream oil and gas title opinions and real property transactions, with a focus on addressing complex title issues for companies operating in the Permian Basin and throughout Texas. Her responsibilities include preparing and negotiating purchase and sale agreements, operating agreements, and other essential contracts.

Before attending law school, Janette gained valuable experience as a lease analyst, where she managed and maintained oil and gas leases and facilitated asset acquisitions. A Texas native, she is a graduate of Thurgood Marshall School of Law at Texas Southern University.

Outside of work, Janette enjoys trying new restaurants, practicing yoga, and cooking.