The Texas shale boom is showing signs of cooling, but demand from the AI boom could help steady the state’s flagging energy industry.
Production activity in America’s oil and gas sector, concentrated in Texas, fell in the third quarter, according to data released in September by the Federal Reserve Bank of Dallas. This marked the second quarter in a row of contraction. The US oil rig count fell to its lowest point in nearly four years in August, according to data from Baker Hughes.
The CEO of Diamondback Energy (FANG), an oil and gas producer based in Midland, Texas, laid out a downtrodden outlook for America’s oil industry in a letter to shareholders in August.
“We continue to believe that, at current oil prices, US shale oil production has likely peaked and activity levels in the Lower 48 will remain depressed,” CEO Kaes Van’t Hof wrote.
“The US shale business is broken,” one respondent to the third quarter Dallas Fed survey, who works in exploration and production, said. “What was once the world’s most dynamic energy engine has been gutted by political hostility and economic ignorance.”
But now, new economy deals are giving an industry in decline a lifeline.
Texas, long the booming center of US energy production, generates more power annually than any other state in the country, and its demand is only climbing.
The Electric Reliability Council of Texas, the grid operator that manages about 90% of the state’s load, predicted in late 2024 that the power demand load in Texas would climb to 148 gigawatts by 2030. Five months later, in April, the operator updated that estimate to 208 gigawatts.
The vast majority of that new demand, nearly 50 gigawatts worth, is expected to come from data centers set to power the AI revolution.
All of these data centers are going to need power, and the Permian Basin oil and gas exploration companies’ mass of preexisting energy assets — especially natural gas turbines — are well-positioned for a transition to new-economy applications, analysts told Yahoo Finance.
Markus Mowatt-Larssen, an energy transition analyst at Welligence, noted that West Texas has an abundance of open land suitable for building both data centers and new power generation assets. Developers can also collocate new data centers at the site of existing upstream assets and “take advantage of stranded natural gas resources for which there is currently not sufficient infrastructure to handle,” he told Yahoo Finance.
A drone view of Midland, Texas, on June 12, 2025. (Reuters/Eli Hartman) · REUTERS / Reuters
Produced water — the water byproduct that comes up from a well along with the extracted hydrocarbons generated by oil and gas assets — can be used for the immense cooling demands of a data center. Gas that might have been “flared,” or burned off, illuminating the night sky throughout the basin, can be redirected to new customers who need power.
And the deals have already started flowing.
Data center developer Vantage announced plans for a 1.4 gigawatt, $25 billion data center campus in West Texas in late August. Skybox Datacenters, another developer, has begun site work on a 300-megawatt data center outside Dallas.
In a clear example of the trend, West Texas-based exploration and production company New Era Energy & Digital (NUAI) and cloud infrastructure provider Sharon AI entered into a joint-venture agreement in November 2024 that proposes building a data center for Sharon AI at the site of New Era’s existing Permian operations.
In the Longhorn State’s marquee deal so far, OpenAI (OPAI.PVT) and Oracle’s (ORCL) envisioned Stargate center is targeting a commitment of half a trillion dollars for 10 gigawatts of power as of late September.
“In a world where speed matters, the ability to rapidly build gas pipelines, power plants, wind and solar farms with batteries, and local transmission lines within the Permian gives the Basin a distinct advantage for AI developers that need to expand computing power as rapidly as possible,” said Gabriel Collins, a fellow at Rice University’s Baker Institute for Public Policy.
Diamondback, bearish on the US oil outlook, has itself now begun looking toward the boom in data center power demand as a new means of generating revenue. The company announced on its fourth quarter earnings call in February that it is seeking partners for a joint-venture project focused on building a large “behind the meter” natural gas plant.
The plant would offload some of its gas to Diamondback to power its own operations while pumping out the lion’s share to data center clients seeking cheap land and abundant electricity generation. Van Hof’t signaled to investors and analysts that the oil and gas company has interest from some of the biggest names in the tech industry.
“We’re still confidentially discussing it with the hyperscalers, giving feedback,” van Hof’t said on the earnings call, citing “how much gas we have that needs a better market.”
The Bastrop Energy Center Power Plant is seen on Dec. 30, 2024, in Cedar Creek, Texas. (Brandon Bell/Getty Images) · Brandon Bell via Getty Images
And Texas isn’t the only place seeing a data center-driven gas boom.
Meta (META) is planning for its $10 billion data center in Richland Parish, La., to be powered at least partially by behind-the-meter natural gas turbines. A Pennsylvania developer has proposed turning what was once the state’s largest coal-burning plant into a massive 4.5-gigawatt natural gas hub to power a sprawling data center campus.
But Texas has the advantage of open land, a massive amount of existing infrastructure, and an industry looking for new ways to bring in revenue.
The 50 gigawatts in the state’s expected data center power demand by 2030 is enough to power all Texas households nearly three times over, and the market is already growing quickly as upstream oil and gas companies see new uses for their gas assets.
“Grid connection delays of 5-plus years, the intermittency of renewable sources, and heavy tariffs affecting international supply chains” have put natural gas infrastructure “in high demand,” Mowatt-Larssen told Yahoo Finance — and Texas is uniquely suited to the task.
“The result for upstream players is a profitable power business.”
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Jake Conley is a breaking news reporter covering US equities for Yahoo Finance. Follow him on X at @byjakeconley or email him at jake.conley@yahooinc.com.
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