AI could drive a natural gas boom as power companies face surging electricity demand

A chimney from the Linden Cogeneration Plant is seen in Linden New Jersey April 22, 2022. 

Kena Betancur | View Press | Corbis News | Getty Images

Natural gas producers are planning for a significant spike in demand over the next decade, as artificial intelligence drives a surge in electricity consumption that renewables may struggle to meet alone.

After a decade of flat power growth in the U.S., electricity demand is forecast to grow as much as 20% by 2030, according to a Wells Fargo analysis published in April. Power companies are moving to quickly secure energy as the rise of AI coincides with the expansion of domestic semiconductor and battery manufacturing as well as the electrification of the nation’s vehicle fleet.

AI data centers alone are expected to add about 323 terawatt hours of electricity demand in the U.S. by 2030, according to Wells Fargo. The forecast power demand from AI alone is seven times greater than New York City’s current annual electricity consumption of 48 terawatt hours. Goldman Sachs projects that data centers will represent 8% of total U.S. electricity consumption by the end of the decade.

The surge in power demand poses a challenge for Amazon, Google, Microsoft and Meta. The tech companies have committed to powering their data centers with renewables to slash carbon emissions. But solar and wind alone may be inadequate to meet the electricity load because they are dependent on variable weather, according to an April note from consulting firm Rystad Energy.

“Economic growth, electrification, accelerating data center expansion are driving the most significant demand growth in our company’s history and they show no signs of abating,”

Robert Blue

Dominion Energy, Chief Executive Officer

Surging electricity loads will require an energy source that can jump into the breach and meet spiking demand during conditions when renewables are not generating enough power, according to Rystad. The natural gas industry is betting gas will serve as the preferred choice.

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Natural gas prices year to date

“This type of need demonstrates that the emphasis on renewables as the only source of power is fatally flawed in terms of meeting the real demands of the market,” Richard Kinder, executive chairman of pipeline operator Kinder Morgan, told analysts during the company’s first-quarter earnings in April.

“The primary use of these data centers is big tech and I believe they’re beginning to recognize the role that natural gas and nuclear must play,” Kinder said during the call. Kinder Morgan is the largest natural gas pipeline operator in the U.S. with 40% market share.

Natural gas is expected to supply 60% of the power demand growth from AI and data centers, while renewables will provide the remaining 40%, according to Goldman Sachs’ report published in April.

Gas demand could increase by 10 billion cubic feet per day by 2030, according to Wells Fargo. This would represent a 28% increase over the 35 bcf/d that is currently consumed for electricity generation in the U.S, and a 10% increase over the nation’s total gas consumption of 100 bcf/d.

“That’s why people are getting more bullish on gas,” said Roger Read, an equity analyst and one of the authors of the Wells Fargo analysis, in an interview. “Those are some pretty high growth rates for a commodity.”

The demand forecasts, however, vary as analysts are just starting to piece together what data centers might mean for natural gas. Goldman expects a 3.3 bcf/d increase in gas demand, while Houston-based investment bank Tudor, Pickering, Holt & Co. sees a base case of 2.7 bcf/d and a high case of 8.5 bcf/d.

Powering the Southeast boom

Power companies will need energy that is reliable, affordable and can be deployed quickly to meet rising electricity demand, said Toby Rice, CEO of EQT Corp., the largest natural gas producer in the U.S.

“Speed to market matters,” Rice told CNBC’s “Money Movers” in late April. “This is going to be another differentiator for EQT and natural gas to take a very large amount of this market share.”

Natural gas market looks oversupplied right now, says EQT CEO Toby Rice

EQT is positioned to become a “key facilitator of the data center build-out” in the Southeast, Rice told analysts on the company’s earnings call in April.

The Southeast is the hottest data center market in the world with Northern Virginia in the thick of the boom, hosting more data centers than the next five largest markets in the U.S. combined. Some 70% of the world’s internet traffic passes through the region daily.

The power company Dominion Energy forecasts that demand from data centers in Northern Virginia will more than double from 3.3 gigawatts in 2023 to 7 gigawatts in 2030.

Further south, Georgia Power sees retail electricity sales growing 9% through 2028 with 80% of the demand coming from data centers, said Christopher Womack, CEO of Georgia Power’s parent Southern Company, during the utility’s fourt-quarter earnings call in February.

“Economic growth, electrification, accelerating data center expansion are driving the most significant demand growth in our company’s history and they show no signs of abating,” Dominion CEO Robert Blue said during the company’s March investor meeting.

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EQT shares over the past year.

The surging power demand in the Southeast lies at the doorstep of EQT’s asset base in the Appalachian Basin, Rice said during the earnings call. Coal plant retirements and data centers could result in 6 bcf/d of new natural gas demand in EQT’s backyard by 2030, the CEO said.

EQT recently purchased the owner of the Mountain Valley Pipeline, which connects prolific natural gas reserves that EQT is operating and developing in the Appalachian Basin to southern Virginia. EQT is the only producer that can access the growing data center market through the pipeline, said Jeremy Knop, the company’s chief financial officer.

“I think we are very uniquely positioned in that sense,” Knop said during the call. Rice said the Southeast will become an even more attractive gas market than the Gulf Coast later in the decade. EQT is planning to expand capacity on the Mountain Valley Pipeline from 2 bcf/d to 2.5 bcf/d. The pipeline is expected to become operational in June.

The level of electricity demand could help lift natural gas prices out of the doldrums.

Prices plunged as much more than 30% in the first quarter of 2024 on strong production, lower demand due to a mild winter and historic inventory levels in the U.S. By 2030, prices could average $3.50 per thousand cubic feet, a 46% increase over the 2024 average price of $2.39, according to Wells Fargo.

Grid reliability worries

Dominion laid out scenarios in its 2023 resource plan that would add anywhere from 0.9 to 9.3 gigawatts of new natural gas capacity over the next 25 years. The power company said gas turbines will be critical to fill gaps when production drops from renewable resources such as solar. The turbines would be dual use and able to take clean hydrogen at some point.

“We’re building a lot of renewables, which all of our customers are looking for, but we need to make sure that we can operate the system reliably,” Blue told analysts during Dominion’s earnings call Thursday.

Renewables will play a major role in meeting the demand but they face challenges that make gas look attractive through at least 2030, Read, the Wells Fargo analyst, told CNBC.

An all of the above strategy is the only thing that we see as the way to maintain the reliability and the affordability that our customers count on.”

Lynn Good

Duke Energy, Chief Executive Officer

Many of the renewables will be installed in areas that are not immediately adjacent to data centers, he said. It will take time to build power lines to transport resources to areas of high demand, the analyst said.

Another constraint on renewables right now is the currently available battery technology is not efficient enough to power data centers 24 hours a day, said Zack Van Everen, director of research at investment Tudor, Pickering, Holt & Co.

Nuclear is a potential alternative to gas and has the advantage of providing carbon free energy, but new advanced technology that shortens typically long project timelines is likely a decade away from having a meaningful impact, according to Wells Fargo.

Richard Kinder, executive chairman of pipeline operator Kinder Morgan, said significant amounts new nuclear capacity will not come online for the foreseeable future, and building power lines to connect distant renewables to the grid will take years. This means natural gas has to play an important role for years to come, Kinder said during the company’s earnings call in April.

“I think acceptance of this hypothesis will become even clearer as power demand increases over the coming months and years and it will be one more significant driver of growth in the demand for natural gas that will benefit all of us in the midstream sector,” Kinder said.

Environmental impact

Any expansion of natural gas in meeting U.S energy demand is likely to be met with opposition from environmental groups who want fossil fuels to be phased out as soon as possible.

Goldman Sachs forecast carbon emissions from data centers could more than double by 2030 to about 220 million tons, or 0.6% of global energy emissions, assuming natural gas provides the bulk of the power.

Virginia has mandated that all carbon-emitting plants be phased out by 2045. Dominion warned in its resource plan that the phase out date potentially raises system reliability and energy independence issues, with the company relying on purchasing capacity across state lines to meet demand.

Duke Energy CEO Lynn Good said natural gas “can be a difficult topic,” but the fossil fuel is responsible for 45% of the power company’s emissions reductions since 2005 as dirtier coal plants have been replaced. Good said electricity demand in North Carolina is growing at a pace not seen since the 1980s or 1990s.

“As we look at the next many years trying to find a way to expand a system to approach this growth, I think natural gas has a role to play,” Good said at the Columbia Global Energy Summit in New York City in April. The CEO said natural gas is needed as a “bridge fuel” until more advanced technology comes online.

“An all of the above strategy is the only thing that we see as the way to maintain the reliability and the affordability that our customers count on,” Good said.

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Paramount’s Shari Redstone is open for business, but business may not be open for her

Shari Redstone, president of National Amusements and controlling shareholder of Paramount Global, walks to a morning session at the Allen & Company Sun Valley Conference in Sun Valley, Idaho, July 12, 2023.

David A. Grogan | CNBC

Shari Redstone may have missed her window.

Paramount Global‘s controlling shareholder is open to a merger or selling the company at the right price, according to people familiar with her thinking. And she has been open to it for several years, said the people, who asked not to speak publicly because the discussions have been private.

Spokespeople for Redstone and Paramount Global declined to comment.

The problem has been finding the right deal for shareholders. Market conditions have made a transformative transaction difficult at best and highly unlikely at worst.

“The market is crying out for reshaping media company portfolios and consolidation,” said Jon Miller, chief executive at Integrated Media and a senior advisor at venture firm Advancit Capital, which Redstone co-founded. “But the deck is stacked against large-scale transactions now because of both immediate concerns in terms of ad sales, subscription video numbers and the cost of debt. No one wants to transact at the current market valuations that these companies are given.”

Paramount Global is an archetype for the media industry’s consolidation conundrum. The company consists of Paramount Pictures, the CBS broadcast network, 28 owned-and-operated local CBS stations, the streaming service Paramount+, free advertising-supported Pluto TV, “Star Trek,” “SpongeBob SquarePants,” MTV, Nickelodeon, Comedy Central, BET and Showtime. It also owns the physical Paramount studio lot in Los Angeles, California.

From a sum-of-the-parts perspective, the company holds a strong hand. Many of Paramount Global’s assets would fit nicely within larger media companies.

“Paramount has a tremendous amount of assets in its content library and they own some pretty powerful sports rights in the form of the NFL contract, Champions League soccer and March Madness,” Guggenheim analyst Michael Morris told CNBC last week.

“But, they are still losing money on their streaming service,” Morris said. “They need to pull these things together, right-size the content, super charge that topline through pricing and penetration, and then we can see investors get excited about this idea again.”

Declining revenue from the acceleration of pay-TV cord-cutting, continued streaming losses and rising interest rates have put Redstone in a bind. The company’s market capitalization has slumped to $7.7 billion, nearly the company’s lowest valuation since Redstone merged CBS and Viacom in 2019. At the time, that transaction gave the combined company a market valuation of about $30 billion.

It’s unclear whether staying the course will help turn investor sentiment. Warren Buffett, CEO of Berkshire Hathaway, one of Paramount Global’s biggest shareholders, told CNBC in April that streaming “is not really a very good business.” He also noted that shareholders in entertainment companies “really haven’t done that great over time.”

Paramount Global’s direct-to-consumer businesses lost $424 million in the second quarter and $511 million in the first quarter. The company reports third-quarter earnings Nov. 2.

CEO Bob Bakish said 2023 will be the peak loss year for streaming. Paramount Global cut its dividend to 5 cents per share from 24 cents per share to “further enhance our ability to deliver long-term value for our shareholders as we move toward streaming profitability,” Bakish said in May.

Wells Fargo analyst Steven Cahall suggested earlier this year that Bakish should shut down the company’s streaming business entirely, despite the fact that Paramount+ has accumulated more than 60 million subscribers.

“We believe Paramount Global is worth a lot more either as a content arms dealer or as a break-up for sale story,” Cahall wrote in a note to clients in May. “Great content, misguided strategy.”

Big Tech lifeline

Bob Bakish, CEO of Paramount, speaks with CNBC’s David Faber on Sept. 6, 2023.

CNBC

Executives at Paramount Global continue to hold out hope that a large technology company, such as Apple, Amazon or Alphabet, will view the collection of assets as a way to bolster their content aspirations, according to people familiar with the matter.

Paramount+’s 61 million subscribers could help supersize an existing streaming service such as Apple TV+ or Amazon’s Prime Video, or give Alphabet’s YouTube a bigger foothold into subscription streaming beyond the National Football League’s Sunday Ticket and YouTube TV.

While Federal Trade Commission Chairman Lina Khan has been particularly focused on limiting the power of Big Tech companies, Apple, Amazon and Alphabet may actually be better buyers than legacy media companies from a regulatory standpoint. They don’t own a broadcast TV network, unlike Comcast (NBC), Fox or Disney (ABC). It’s highly unlikely U.S. regulators would allow one company to own two broadcast networks. Divesting CBS is possible, but it’s so intertwined with Paramount+ that separating the network from the streaming service would be messy.

“We believe Paramount Global is too small to win the streaming wars, but it is bite-size enough to be acquired by a larger streaming competitor for its deep library of film and TV content, as well as its sports rights and news assets,” Laura Martin, an analyst at Needham & Co., wrote in an Oct. 9 research note to clients.

Acquiring Paramount Global would be a relative drop in the bucket for a Big Tech company. Paramount Global’s market value was below $8 billion as of Friday. It also has about $16 billion in long-term debt.

Still, even with huge balance sheets and trillion-dollar valuations, there’s no evidence technology companies want to own declining legacy media assets such as cable and broadcast networks. Netflix has built its business specifically on the premise that these assets will ultimately die. Paramount’s lot and studio may be appealing for content creation and library programming, but that would leave Redstone holding a less desirable basket of legacy media assets.

Breakup difficulties

It’s possible Redstone could break up the company and sell off legacy media assets to a private equity firm that could milk them for cash. But Paramount Global’s diminished market valuation, relative to its debt, likely makes a leveraged buyout less appealing for a potential private equity firm.

Moreover, rising interest rates have generally slowed down take-private deals in all industries, as the cost of paying debt interest has soared. Globally, buyout fund deal volume in the first half of 2023 is down 58% from the same period a year ago, according to a Bain & Co. study.

If a full sale to Big Tech and a partial sale to private equity won’t happen, another option for Redstone is to merge or sell to another legacy media company. Warner Bros. Discovery could merge with Paramount Global, though putting together Warner Bros. and Paramount Pictures may hold up deal approval with U.S. regulators.

Beyond regulatory issues, recent history suggests big media mergers haven’t worked well for shareholders. Tens of billions of dollars in shareholder value have been lost in recent media mergers, including WarnerMedia and Discovery, Disney and the majority of Fox, Comcast/NBCUniversal and Sky, Viacom and CBS, and Scripps and Discovery.

Merger partners such as Warner Bros. Discovery also may prefer to sell or merge with a different company, such as Comcast’s NBCUniversal, if regulators allow a big media combination.

Redstone has recently dabbled around the edges, shedding some assets, such as book publisher Simon & Schuster, and engaging in talks to sell a majority stake in cable network BET.

But Paramount Global shelved the idea of selling a stake in BET in August after deciding sale offers were too low to outweigh the value of keeping the network in its cable network portfolio. With the total company’s market valuation below $8 billion, it’s difficult to convince buyers to pay big prices for parts. A change in broader investment sentiment that pushes the company’s valuation higher may help Redstone and other Paramount Global executives get more comfortable with divesting assets.

Selling National Amusements

If Redstone can’t find a deal to her liking, she could also sell National Amusements, the holding company founded by her father, Sumner Redstone, that owns the bulk of the company’s voting shares. National Amusements owns 77.3% of Paramount Global’s Class A (voting) common stock and 5.2% of the Class B common stock, constituting about 10% of the overall equity of the company.

Redstone took a $125 million strategic investment from merchant bank BDT & MSD Partners earlier this year to pay down debt, reiterating her belief in Paramount Global’s inherent value.

“Paramount has the best assets in the media industry, with an incredible content library and IP spanning all genres and demographics, as well as the No. 1 broadcast network, the leading free ad-supported streaming television service and the fastest-growing pay streaming platform in the U.S.,” Redstone said in a statement in May. “NAI has conviction in Paramount’s strategy and execution, and we remain committed to supporting Paramount as it takes the necessary steps to build on its success and capitalize on the strategic opportunities in our industry.”

Selling National Amusements wouldn’t alter Paramount Global’s long-term future. But it is a way out for Redstone if she can’t find a deal beneficial to shareholders.

Paramount Global isn’t actively working with an investment bank on a sale, according to people familiar with the matter. The company is content to wait for a shift in market conditions or regulatory officials before getting more aggressive on a transformational deal, said the people.

Still, Redstone’s predicament aptly sums up legacy media’s current problems. The industry is counting on a turn in market sentiment, while executives privately grumble that in the near term there’s little they can do about it.

WATCH: Mad Money host Jim Cramer weighs in on Paramount Global

Lightning Round: Paramount Global might drop another two to three points lower, says Jim Cramer

Disclosure: Comcast’s NBCUniversal is the parent company of CNBC.

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Phishing scams targeting small business on social media including Meta are a ‘gold mine’ for criminals

With so much of daily life happening over social media, it’s not surprising that small businesses are relying more and more on Instagram, Facebook and other platforms to spread the word about their business and sell products.

But there is one big catch: small business owners are at a big disadvantage on these platforms when it comes to cybersecurity. 

Take it from Pat Bennett, an entrepreneur who sold granola in the Cleveland area and got about half of her sales through Instagram. The business was already under pressure from the rising cost and availability of sweeteners and oats when her business Instagram page, Pat’s Granola, came under attack. 

The attack looked innocuous. Bennett received a message on Instagram from a small business owner she knows personally. Using a link, her acquaintance asked Bennett to vote for her in a contest. It was a legitimate contest, and it wasn’t unusual for Bennett to communicate with people on Instagram Messenger. As it turned out, it was an attack that went to everyone in her contact’s address book. Bennett lost control of her Instagram and Facebook accounts and hasn’t regained access, despite using all the channels Meta recommends. 

With help, she was able to track the IP addresses to Europe, but that wasn’t enough to avoid a worst-case scenario. Bennett received a letter saying she could regain control of her accounts if she paid close to $10,000. She declined to pay the ransom and had to start all over again. 

Pat Bennett, a Cleveland-based entrepreneur who sells granola says about half of her sales are through Instagram, but she became victim to an Instagram Messenger hack that resulted in Bennett to losing control of her Instagram and Facebook accounts, and she hasn’t regained access, despite using all the channels Meta recommends.

Source: Pat Bennett

Bennett’s experience isn’t isolated. As it turns out, small businesses like Pat’s Granola are frequent targets of hacking rings. CNBC quarterly surveys of small business owners in recent years have indicated that many do not rate the risk of cyberattack highly, yet the FBI says that in recent years a wave of hacks has targeted small business. In 2021, the FBI’s Internet Crime Complaint Center received 847,376 complaints regarding cyberattacks and malicious cyber activity with nearly $7 billion in losses, the majority of which targeted small businesses.

Small business owners say social media giants such as Meta have done little to help them address the problem. 

A Meta spokesperson declined to offer specific comment in response to small business owner concerns, but pointed to its efforts to protect businesses targeted by malware. The company has security researchers that track and take action against “threat actors” worldwide and has detected and disrupted nearly 10 new malware strains this year. Malware can target victims through email phishing, browser extensions, ads and mobile apps and various social media platforms. The links look innocuous and rely on tricking people into clicking on or downloading something. 

Why Main Street is an easy target 

With marketing and selling over Instagram and other social platforms being an attractive way for small businesses to reach and expand their customer base, it’s not surprising that criminal organizations have followed.

According to SCORE, a nonprofit partly funded by the U.S. Small Business Administration, nearly half of small business owners cited social media as their preferred digital marketing channel. Compare that to 51% who cited their company website and 33% who prefer online advertising. Moreover, 73% of business owners said they consider social media to be their most successful digital marketing channel, with 66% citing Facebook, 42% citing Alphabet’s YouTube and 41% Instagram. 

“Criminals are in the business of stealing, so you’re going to go where you can make money and get away with it. And social media accounts of small businesses are like a gold mine,” said Joseph Steinberg, a cyber security privacy and AI expert, who sees small business social media accounts as “low hanging fruit.” 

Bryan Palma, chief executive officer at Trellix, a cybersecurity company that worked with the FBI and Europol to take down Genesis Market, an “eBay” for cybercrime criminals, earlier this year, said he has been seeing a range of cybercriminals targeting platforms such as Instagram, YouTube and Facebook. Some are independent hackers, while others are larger, organized crime groups that target social media accounts with more than 50,000 followers. 

Common online scams to watch out for

One common scam, Palma said, is criminals will create a fake Instagram page notifying the user that there’s a problem with their post, and they should “click here, and we’ll help you fix it.” The link redirects users to a fake site asking them to type in their Instagram credentials. 

That’s similar to what happened to Cai Dixon, owner of Copy-Kids, which makes video content for kids. Dixon created an active online Facebook group with 300,000 followers and was getting as much as $2,000 a month in performance bonuses. In March, she got a message purporting to be from Meta, asking if she would like a blue badge verification. Because she was already in contact with Meta employees over Messenger, she believed the message and gave her private information. 

Turns out, it was a phishing scheme. Almost immediately, Dixon lost control of the account and the Facebook group she had spent years cultivating. The hackers removed Dixon and all the other page moderators and started posting animal cruelty videos, videos of heavy machinery and fake content. When she finally talked to someone on Facebook, “they said the only thing I could do was to tell all my friends to report it hacked and then they could take it down.” 

Cai Dixon, owner of Copy-Kids, which makes video content for kids, created an active online Facebook group with 300,000 followers and was getting as much as $2,000 a month in performance bonuses. But in March, a phishing scheme led Dixon to lose control of the account and the Facebook group she had spent years cultivating.

Source: Cai Dixon

These common hacks for small businesses offer little recourse.

“It’s especially damning for a small business, which has a pretty minuscule security budget compared to a General Electric or GM, which are running the best tools,” said Greg Hatcher, founder of White Knight Labs. 

Companies with 100 or fewer employees experience 350% more social engineering attacks than larger companies, according to Barracuda, a cloud security company. More than half of social engineering attacks are phishing, and one in five organizations had an account compromised in 2021. 

Social media companies are aware of the problem, but fending off attacks on small businesses is time-consuming and expensive. It’s one matter when a large Fortune 500 company that spends millions on advertising or a high-profile individual encounters a hacker. But when it comes to small business owners, there’s less financial incentive. 

“It is often better for social media companies from a purely bottom line to ignore small businesses when they have problems,” Steinberg said, adding that small businesses are generally getting the service for free or close to free. 

Two-factor authentication and cybersecurity tools

Though the threat seems vast, cybersecurity experts said the most effective defense is fairly basic. Not enough people use the security features that social platforms already offer, like two-factor authentication. Entrepreneurs can also use business password managers, designed for multiple users who may need access to the same accounts. 

“Small businesses don’t have to be completely hung out to dry. They can have good cyber hygiene, with a good password policy,” said Hatcher, emphasizing length, ideally 30-40 characters, over complexity as well as two-factor authentication. 

Knowing what to look for and being wary of any links or requests for information can also go a long way. For the unfortunate who get hacked and lose access to accounts, the Identity Theft Resource Center is a nonprofit that can help victims figure out the next steps.   

For now, the online world is still under-regulated and monitored.

Cyberattacks conducted through tech giants have caught the attention of the federal government’s main cyber agency, the Cybersecurity and Infrastructure Security Agency. In an interview with CNBC’s “Tech Check” in January of this year, CISA director Jen Easterly said, “Technology companies who for decades have been creating products and software that are fundamentally insecure need to start creating products that are secure by design and secure by default with safety features baked in,” she said. But the U.S. government has so far taken a cautious approach with support for small business specifically – a spokeswoman for the U.S. Cybersecurity Infrastructure Agency told CNBC in January that it doesn’t regulate small business software, instead pointing to a blog post with guidance aimed at helping businesses large enough to have a security program manager and an IT lead.

“There are a lot of people spending the majority of their time in the virtual world, but the resources are not as extensive. We still have more resources protecting streets,” Palma said. Some of the big online scams get addressed, but there are many “smaller issues” that are costing people and small businesses real money, but governments and companies aren’t equipped to deal with it. “I think over time, we have to shift that balance,” he said. 

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