Houston’s data center capacity set to grow 80%, report says

data findings

Texas has also officially claimed the No. 1 spot in the U.S. for existing and under-construction data center capacity, according to the report. Photo courtesy JLL

Houston stands to benefit from constraints dogging data center markets elsewhere in Texas, a new report indicates. This comes against the backdrop of Texas surpassing Virginia as the country’s top state for data centers — and amid deepening opposition to these facilities.

The report, published by commercial real estate services provider JLL, foresees Houston continuing to gain traction in data center development as occupants seek “scalable alternatives” to Texas markets experiencing supply-and-demand imbalances.

The Houston area currently hosts data centers with 287 megawatts of capacity, well below capacity levels in the Dallas-Fort Worth, Austin-San Antonio and West Texas markets.

However, the region is witnessing a spike in capacity, with 390 megawatts of capacity under construction, according to the report. Counting newly built data centers, Houston would be home to 677 megawatts of data center capacity, an 80 percent increase from the current inventory, the report says.

Developers target West Houston for large-scale data centers

Developers increasingly are evaluating West Houston and surrounding areas for large-scale campuses capable of supporting behind-the-meter power, according to the report. Data center development in the region is likely to remain concentrated in those areas, where power is readily accessible and flood risks are lower, the report adds.

The report notes that Houston is evolving from a traditionally enterprise-focused co-location market for data centers into a “credible large-scale growth market,” buoyed by rising interest in hyperscale facilities and increased development activity.

Corporate, energy and healthcare users are still active in Houston’s data center market, the report says, with cloud computing and technology tenants making inroads. The Houston market absorbed 25 megawatts of data center capacity in the first half of this year.

Texas crowned No. 1 state market for data center capacity

The growth of Houston’s data center sector is occurring in tandem with Texas’ ascent as a data center market. The report shows Texas now boasts 26 gigawatts of existing and under-construction capacity, followed by Virginia at 13 gigawatts.

JLL declares that “Texas has cemented its position as the state for data centers.”

The “frontier” markets of West Texas, the Carolinas, Louisiana, and Ohio account for 77 percent of all capacity being developed nationwide, according to the report.

As evidence of Texas’ heightened stature in the data center sector, commercial real estate services provider Cushman & Wakefield recently ranked Dallas as the world’s No. 1 primary data center market, while Austin-San Antonio led the list of second-tier markets and West Texas topped the third-tier ranking.

These rankings underscore “Texas’ growing importance as a large-scale AI infrastructure hub,” Cushman & Wakefield says.

Opposition to new data centers in Texas grows

While businesses see the value of adding data centers in Texas, the state’s data center boom is rattling residents and politicians alike.

A recent University of Houston survey finds that although 85 percent of Houston-area residents use AI—a key driver of data center growth—nearly 63 percent oppose construction of a data center within a mile of their home. Experts estimate 6.5 gigawatts of capacity, or roughly one-fifth of the total U.S. pipeline, will join the Texas power grid by 2030, with Houston serving as a main hub.

A poll taken recently by the University of Texas/Texas Politics Project yielded similar results: 56 percent of Texans oppose development of data centers in their community.

“Texas’ grid is already facing pressure from population growth, extreme weather and rising industrial demand,” UH researcher Soran Mohtadi says. “When residents say they are concerned about data centers, they’re mostly referring to grid reliability and affordability.”

Data center backlash prompts action by politicians

Responding to Texans’ concerns over power and water consumption, Gov. Greg Abbott recently imposed a moratorium on new data centers in the state to allow time for regulatory agencies to assess the projects’ impact. Meanwhile, some state lawmakers are calling for a crackdown on data center development.

Last month, a state legislative committee chaired by Sen. Joan Huffman, a Houston Republican, held a hearing on the effects of state sales tax exemptions given to data centers. The cost of these exemptions has climbed from an estimated $14.6 million in 2014-15 to a projected $3.3 billion in 2028-29, according to law firm Holland & Knight.

Two backers of massive data centers in Texas, social media giant Meta Platforms and AI powerhouse OpenAI, agreed this week to comply with Abbott’s recently issued standards regarding data center projects—and more have followed suit.

Dan Diorio, executive vice president of state policy and government affairs for the industry-backed Data Center Coalition, fears backlash against data centers may curb economic growth in Texas.

“I worry that communities that put moratoriums ultimately create too much uncertainty and unpredictability, and what that ultimately means is that those communities may shut themselves off to data center development but also may shut themselves off to broader economic development,” Diorio told Fox 7 News in Austin.

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SLB and Liberty Energy are working together to help solve the "bottleneck in AI infrastructure." Image courtesy SLB

SLB teams with Liberty Energy on modular power for AI data centers

ai alliance

Houston-headquartered SLB and Denver-based Liberty Energy Inc. announced a strategic agreement this month to support the rapid growth of new data center capacity.

Under the agreement, SLB will supply modular data center infrastructure and oversee large-scale execution, while Liberty will provide modular power generation systems and behind-the-meter power management technology for developers looking to add capacity. According to Reuters, the power will come from natural gas generation.

“The bottleneck in AI infrastructure is no longer just compute. It is the ability to deliver infrastructure and power on the timelines the market now demands,” Gavin Rennick, president of SLB’s New Energy and Industrial business, said in a news release. “By bringing together complementary infrastructure and power capabilities, we will help developers accelerate deployment of new data center capacity.”

The companies seek to specifically offer the modular technologies in areas without traditional grid connections or where grid capacity is limited.

They also aim to improve the "efficiency, flexibility and environmental performance of future data center energy systems," potentially through solutions like hybrid power systems and digital energy management, according to the news release.

Goldman Sachs estimates that U.S. data center capacity will more than double from 31 gigawatts in 2025 to 66 gigawatts in 2027. Other reports predict that Houston and Texas will be home to a significant portion of the data center boom, with capacity in the city and the state also expected to double in the next few years.

“The scale and complexity of AI energy infrastructure is fundamentally changing how power systems are built and deployed,” Ron Gusek, CEO of Liberty Energy, added in the release. “Liberty’s comprehensive power service platform is engineered to meet this transition, as customers increasingly prioritize tailored, integrated solutions. Building on our long-standing relationship with SLB, we are excited to bring power solutions that address immediate capacity constraints while supporting the next generation of energy systems.”

SLB sold its onshore hydraulic fracturing business in the United States and Canada to Liberty Energy in December 2020 in exchange for a 37 percent equity interest in the company.

A new report estimates that more than 90 percent of data center-related carbon dioxide emissions could potentially be mitigated through carbon capture and storage. Photo via Unsplash

New Rice study details how carbon capture could reduce AI data center emissions

by the numbers

A new study out of Rice University points to carbon capture and storage methods as pivotal solutions to addressing emissions from AI-driven data centers.

The study was authored by Hon Chung Lau, an adjunct professor in the Department of Chemical and Biomolecular Engineering at Rice University and founder of Low Carbon Energies LLC, and Steve C. Tsai, an energy transition consultant at Low Carbon Energies LLC, and published in the journal Energy & Fuels.

According to the study, U.S. data center power capacity could more than quadruple in five years, growing from 40 gigawatts in 2025 to 169 gigawatts by 2030. Without proper regulation of emissions, the report estimates that carbon dioxide produced by fossil-fuel power plants supplying electricity to data centers could grow at the same scale, increasing from 90 million metric tons to more than 404 million metric tons over the same time period.

The researchers analyzed publicly available data on announced U.S. data centers, which included energy sources, locations, and projected power capacity before estimating data center-related carbon emissions based on each state’s electricity mix. From there, they examined whether those emissions could be captured and stored underground in saline aquifers.

The team estimates that 34 states have enough saline aquifer storage capacity to store more than 100 years of projected data center-related carbon dioxide emissions beyond 2030. Aquifers could store an estimated 59 million metric tons of data center-related carbon dioxide, or about 66 percent of the sector’s emissions in 2025. However, that calculation could grow to 299 million metric tons, or about 74 percent of projected data center-related emissions by 2030.

The researchers found that more than 90 percent of data center-related carbon dioxide emissions could potentially be mitigated through carbon capture and storage when out-of-state storage options are included, even though they note that carbon capture isn’t the only solution.

“It does show that the geology exists to make a meaningful impact, especially in states where data center growth is strongest,” Lau said in a news release.

Rapid growth in states including Texas, Virginia, Pennsylvania, Ohio, Arizona, Colorado, Utah and Illinois was considered in the study. According to the findings, Texas would need to add 25 gigawatts of power capacity by 2030 to meet projected data center demand, as data centers require reliable electricity 24/7.

“Data centers are becoming one of the defining energy challenges of the AI era,” Lau added in the news release. “The question is not only whether we can build enough computing infrastructure, but whether we can power it in a way that is reliable, affordable and compatible with decarbonization goals.”

Scotty Nyquist discuss the growth in AI data centers and the strain on the system. Photo via HARC report

Houston energy expert asks: Who pays when AI outruns the power grid?

Guets Column

For most of the past 20 years, U.S. electricity policy relied on predictable trends in demand. Electricity use, in most regions, increased gradually, forecasts were stable, and utilities adjusted the system in small steps. Power plants, transmission lines, and substations were generally added to reflect shifts in load, rather than growth, and costs were recovered through modest adjustments to customer bills.

Growth in AI data centers has disrupted this model. A single facility can add as much electricity demand as a small town. That demand comes all at once, runs continuously, and has little tolerance for outages. If electricity service drops even briefly, computation stops, and services shut down. Ironically, data centers need reliable service, a point that their emergence is driving concern around for the rest of the grid.

What the numbers say

The International Energy Agency projects global electricity consumption from data centers to double by 2030, reaching roughly 945 TWh, nearly 3 percent of global electricity demand, with consumption growing about 15 percent per year this decade. McKinsey projects that U.S. data center demand alone could grow 20–25 percent per year, with global capacity demand more than tripling by 2030.

After years of roughly 0.5 percent annual demand growth, many forecasts now place total U.S. electricity demand growth closer to 2–3 percent per year through the mid-2030s, with much higher growth in specific regions. In Texas, some forecasters are saying electricity demand could double over the next five years, a staggering 10 percent per year growth rate. What sounds incremental on paper translates into a major challenge on the ground. Meeting this pace of growth is estimated to require $250–$300 billion per year in grid investment, about double what the system has been absorbing.

Where the system starts to strain

The strain appears first in the interconnection queue. It shows up as long waits, backlogs, and delays for connecting new loads and new generation.

Before new generators or large load customers can be connected, a study is required to assess their impact on the grid, whether it can physically handle the added load, and whether upgrades are required. With AI-driven data centers, utilities face far more connection requests than they can realistically support. In ERCOT, large-load interconnection requests exceed 200 gigawatts, most tied to data centers. That amount exceeds historical norms, and it is several times larger than what can be practically studied or built in the near term.

To be clear, public utility commissions are required to study these requests because they must manage system capabilities to ensure minimal disruption. This means engineers spend time evaluating projects that may never be built, while other more commercially viable projects may wait longer for approvals. This extends timelines and makes infrastructure planning less reliable.

Why policymakers are rethinking the rules

Utilities and their regulators must decide how much generation, transmission, and substation capacity to build years before it comes online. Those decisions are based on expected demand at the time projects are approved. When it comes to data centers, by the time infrastructure is completed, they may end up deploying newer, more efficient chips that use less power than originally assumed. This can result in grid infrastructure built for a higher load than what actually materializes, leaving excess capacity that still must be paid for through system-wide rates.

That’s the central dilemma. If utilities build too little capacity, the system operates with less reserve margin. During periods of grid stress, operators have fewer options, increasing the likelihood of curtailments or outages. However, if utilities build too much, customers may be asked to pay for infrastructure that is not fully used.

In response, policymakers are adjusting the rules. In some regions, regulators are moving toward bring-your-own-power approaches that require large data centers to supply or fund part of the capacity needed to serve them or reduce demand during system stress. At the federal level, permitting reforms tied to datacenter infrastructure increasingly treat electricity as a strategic economic input.

As Ken Medlock, senior director at the Baker Institute Center for Energy Studies (CES), explains:

“Many of the planned data centers are now also adding behind-the-meter options to their development plans because they do not anticipate being able to manage their needs solely from the grid, and they certainly cannot do so with only intermittent power sources.”

Behind-the-meter (BTM) refers to power that a consumer controls on its side of the utility meter, such as on-site gas generation or a dedicated power plant. These resources allow data centers to keep operating during grid-related service. Most facilities remain connected to the grid, but the backup BTM generation serves as insurance for operating their core business.

This shifts responsibility. Utilities traditionally manage reliability across all customers by maintaining an operating reserve margin, or spare capacity. Increasingly, large-load customers manage part of their own electricity reliability needs, which changes how infrastructure is planned and how risk is distributed.

Bottom line

AI-driven load growth is arriving faster and in more concentrated places than the power system was built to accommodate. Utilities and regulators are being forced to make decisions sooner than planned about where to build, how fast to build, and which customers get priority when capacity is limited. The effects extend beyond data centers, showing up in system costs, reliability margins, competition for grid access, and pressure on communities and industries that depend on affordable and dependable power. The issue is not whether electricity can be generated, but how the costs and risks of rapid demand growth are distributed as the system tries to keep up. How regulators balance these decisions will determine who pays as AI demand outruns the power grid.

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Scott Nyquist is a senior advisor at McKinsey & Company and vice chairman, Houston Energy Transition Initiative of the Greater Houston Partnership. The views expressed herein are Nyquist's own and not those of McKinsey & Company or of the Greater Houston Partnership. This article originally appeared on LinkedIn.

Energy hungry data centers are increasing electric costs. Getty Images

As electric bills rise, evidence mounts that data centers share blame

Data Talk

Amid rising electric bills, states are under pressure to insulate regular household and business ratepayers from the costs of feeding Big Tech's energy-hungry data centers.

It's not clear that any state has a solution and the actual effect of data centers on electricity bills is difficult to pin down. Some critics question whether states have the spine to take a hard line against tech behemoths like Microsoft, Google, Amazon and Meta.

But more than a dozen states have begun taking steps as data centers drive a rapid build-out of power plants and transmission lines.

That has meant pressuring the nation's biggest power grid operator to clamp down on price increases, studying the effect of data centers on electricity bills or pushing data center owners to pay a larger share of local transmission costs.

Rising power bills are “something legislators have been hearing a lot about. It’s something we’ve been hearing a lot about. More people are speaking out at the public utility commission in the past year than I’ve ever seen before,” said Charlotte Shuff of the Oregon Citizens’ Utility Board, a consumer advocacy group. “There’s a massive outcry.”

Not the typical electric customer

Some data centers could require more electricity than cities the size of Pittsburgh, Cleveland or New Orleans, and make huge factories look tiny by comparison. That's pushing policymakers to rethink a system that, historically, has spread transmission costs among classes of consumers that are proportional to electricity use.

“A lot of this infrastructure, billions of dollars of it, is being built just for a few customers and a few facilities and these happen to be the wealthiest companies in the world,” said Ari Peskoe, who directs the Electricity Law Initiative at Harvard University. “I think some of the fundamental assumptions behind all this just kind of breaks down.”

A fix, Peskoe said, is a “can of worms" that pits ratepayer classes against one another.

Some officials downplay the role of data centers in pushing up electric bills.

Tricia Pridemore, who sits on Georgia’s Public Service Commission and is president of the National Association of Regulatory Utility Commissioners, pointed to an already tightened electricity supply and increasing costs for power lines, utility poles, transformers and generators as utilities replace aging equipment or harden it against extreme weather.

The data centers needed to accommodate the artificial intelligence boom are still in the regulatory planning stages, Pridemore said, and the Data Center Coalition, which represents Big Tech firms and data center developers, has said its members are committed to paying their fair share.

But growing evidence suggests that the electricity bills of some Americans are rising to subsidize the massive energy needs of Big Tech as the U.S. competes in a race against China for artificial intelligence superiority.

Data and analytics firm Wood Mackenzie published a report in recent weeks that suggested 20 proposed or effective specialized rates for data centers in 16 states it studied aren’t nearly enough to cover the cost of a new natural gas power plant.

In other words, unless utilities negotiate higher specialized rates, other ratepayer classes — residential, commercial and industrial — are likely paying for data center power needs.

Meanwhile, Monitoring Analytics, the independent market watchdog for the mid-Atlantic grid, produced research in June showing that 70% — or $9.3 billion — of last year's increased electricity cost was the result of data center demand.

States are responding

Last year, five governors led by Pennsylvania's Josh Shapiro began pushing back against power prices set by the mid-Atlantic grid operator, PJM Interconnection, after that amount spiked nearly sevenfold. They warned of customers “paying billions more than is necessary.”

PJM has yet to propose ways to guarantee that data centers pay their freight, but Monitoring Analytics is floating the idea that data centers should be required to procure their own power.

In a filing last month, it said that would avoid a "massive wealth transfer” from average people to tech companies.

At least a dozen states are eyeing ways to make data centers pay higher local transmission costs.

In Oregon, a data center hot spot, lawmakers passed legislation in June ordering state utility regulators to develop new — presumably higher — power rates for data centers.

The Oregon Citizens’ Utility Board says there is clear evidence that costs to serve data centers are being spread across all customers — at a time when some electric bills there are up 50% over the past four years and utilities are disconnecting more people than ever.

New Jersey’s governor signed legislation last month commissioning state utility regulators to study whether ratepayers are being hit with “unreasonable rate increases” to connect data centers and to develop a specialized rate to charge data centers.

In some other states, like Texas and Utah, governors and lawmakers are trying to avoid a supply-and-demand crisis that leaves ratepayers on the hook — or in the dark.

Doubts about states protecting ratepayers

In Indiana, state utility regulators approved a settlement between Indiana Michigan Power Co., Amazon, Google, Microsoft and consumer advocates that set parameters for data center payments for service.

Kerwin Olsen, of the Citizens Action Council of Indiana, a consumer advocacy group, signed the settlement and called it a “pretty good deal” that contained more consumer protections than what state lawmakers passed.

But, he said, state law doesn't force large power users like data centers to publicly reveal their electric usage, so pinning down whether they're paying their fair share of transmission costs "will be a challenge.”

In a March report, the Environmental and Energy Law Program at Harvard University questioned the motivation of utilities and regulators to shield ratepayers from footing the cost of electricity for data centers.

Both utilities and states have incentives to attract big customers like data centers, it said.

To do it, utilities — which must get their rates approved by regulators — can offer “special deals to favored customers” like a data center and effectively shift the costs of those discounts to regular ratepayers, the authors wrote. Many state laws can shield disclosure of those rates, they said.

In Pennsylvania, an emerging data center hot spot, the state utility commission is drafting a model rate structure for utilities to consider adopting. An overarching goal is to get data center developers to put their money where their mouth is.

“We’re talking about real transmission upgrades, potentially hundreds of millions of dollars,” commission chairman Stephen DeFrank said. “And that’s what you don’t want the ratepayer to get stuck paying for."

The fresh funding will go toward advancing the company's Xeus HTS wire technology. Photo via metoxtech.com

Houston superconductor tech manufacturer raises $25M

money moves

A Houston company has closed its series B extension at $25 million.

MetOx International, which develops and manufactures high-temperature superconducting (HTS) wire, announced it closed a $25 million series B extension. Centaurus Capital, an energy-focused family office, and New System Ventures, a climate and energy transition-focused venture firm, led the round with participation from other investors.

"MetOx has developed a robust and highly scalable operation, and we are thrilled to partner with the Company as it enters this pivotal growth stage," says John Arnold, founder of Centaurus, in a news release. "The market for HTS is expanding at an unprecedented pace, with demand for HTS far outweighing supply. MetOx is poised to be the leading U.S. HTS producer, closing the supply gap and bringing dramatic capacity to high power innovations and applications. Their progress and potential are unmatched in the field, and we are proud to support their growth."

The fresh funding will go toward advancing the company's Xeus HTS wire technology for key energy transition applications by expanding MetOx's U.S.-based manufacturing capabilities to meet demand.

"This funding marks a pivotal step in our mission to revolutionize the energy and technology sectors with our advanced power delivery technology and accelerate delivery for our customers and partners. HTS is critical to enhancing the efficiency of our electric grid and enabling technological developments that, in many cases, would not be viable or even possible without superconductor technology," adds Bud Vos, CEO of MetOx. "Support from investors such as Centaurus and NSV not only provides the financial resources and strategic support required for accelerated scaleup, but also validates the broad reach of our technology across energy, data center, medical, and defense industries."

HTS wire technology is critical for the energy transition, especially amid rising data center growth, and for next generation wind turbines and interconnections.

MetOx's technology originated out of the University of Houston and was founded in 1998 by Alex Ignatiev, UH professor emeritus of physics and a fellow of the National Academy of Inventors. Last year, the company secured $3 million in funding from the U.S. Department of Energy to support the advancement of its proprietary manufacturing technology for its HTS wire.

"MetOx's HTS technology aligns with our systems-level research and offers a unique opportunity to dramatically accelerate the energy transition," says Ian Samuels, founder and managing partner at NSV. "MetOx's Xeus wire stands to be a force multiplier in clean energy generation and high-power transmission and distribution, enabling load growth and the deployment of power-dense data centers. NSV is excited to support MetOx as it scales domestic manufacturing capacity."

———

This article originally ran on InnovationMap.

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Telsa eyes Houston area for $10 billion solar manufacturing plant

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Electric vehicle and clean energy company Tesla is considering building a new $10.1 billion solar cell manufacturing facility in Fort Bend County, according to documents filed with the Texas Comptroller’s Office.

If approved, the plant, called Project Sun City, would be located on a 3,050-acre site off FM 762 and FM 1994 in Richmond, Texas. Tesla aims to finish construction in 2028, with the plant being operational by early 2029.

The plant will manufacture photovoltaic (PV) solar cells and modules that can convert sunlight into electricity. PV Magazine reports that the facility is "the largest single manufacturing investment Tesla has proposed on paper."

Advisory and consulting firm Kroll submitted the documents to the Texas Comptroller of Public Accounts and noted if an agreement regarding tax incentives isn't reached, the project will exit Texas.

Tesla has requested credits under the Jobs, Energy, Technology, and Innovation (JETI) Act. The incentive program aims to attract large, capital-intensive economic development projects by lowering the property taxes an entity must pay over 10 years if it meets requirements related to job creation and investment. For example, pharmaceutical giant Bristol Myers Squibb Co. recently announced that its forthcoming $2.3 billion Houston-area manufacturing site is a qualified project under the JETI program.

Kroll predicts that the facility would create 9,712 new full-time jobs, over 1,100 construction jobs and billions of dollars in future property tax revenue, the documents show. Additionally, it says the project will spur $1.1 billion in local business expenditures and that Texas would increase its GDP by approximately $107 billion as a result of the project activities.

Tesla opened its $200 million Megafactory in Brookshire, Texas, last year. The company is continuing its goal to deploy 100 gigawatts of solar manufacturing in the U.S before the end of 2028. According to the U.S. Energy Information Administration, 100 gigawatts is equal to about 8 percent of the country's power grid capacity.

Houston researchers land $10M grant to study how climate change drives disease threats

climate health research

Researchers from Rice University, Baylor College of Medicine and the University of Texas School of Public Health have received a $10 million grant to support research and public education on how climate change is linked to public health.

The funding comes from North Carolina-based Burroughs Wellcome Fund and is known as the organization’s Climate + Health Excellence (CHEX) award. It will be used over the next five years to launch the new FORECAST initiative, led by Rice professors and co-investigators Sylvia Dee and Joseph Campan.

FORECAST will “study how a rapidly changing environment and weather drive the emergence and expansion of deadly pathogens in human populations,” according to a release from Rice.

“This grant supports novel research linking climate change projections to health care solutions while simultaneously ensuring the next generation of scientists, leaders and policymakers have the training to assess and respond to the climate change risks that we already know are increasing every year,” Dee said in the release.

The funding will go toward a variety of new initiatives and centers.

At Rice, the funding will help launch the new Center for Climate and Environmental Health, as well as cross-campus multidisciplinary collaborations, seed grants, postdoctoral and graduate positions, and more, according to the university.

The grant will also support the statewide “Middle to Medical” climate-health educational program for youth. The program will focus on teaching how pathogens spread and how climate change plays a role in the process.

“FORECAST will prepare youth across Texas to make informed health decisions that protect themselves and their families and communities from extreme weather and disease-related risks,” Nancy Moreno, a professor of education, innovation and technology at Baylor College of Medicine and co-investigator on this grant, added in the release.

Anthony Maresso, professor of molecular virology and microbiology at Baylor College of Medicine, will share expertise in viral pathogen sewage detection that was developed during the COVID-19 pandemic; while Eric Boerwinkle, dean of the UT School of Public Health, will share insights from the Texas Wastewater Environmental Biomonitoring Network, which tracks disease-causing viruses and bacteria by testing wastewater weekly at Texas sites.

“Hotter days, bigger storms, new disease threats — Texas’s future demands preparation,” Boerwinkle added in the release. “With support from the Burroughs Wellcome Fund, the FORECAST team is helping Texas detect threats earlier and respond faster, saving lives and strengthening our economy.”

EV surge could shutter 40 refineries by 2040, Wood Mackenzie report warns

ev outlook

The rise of electric vehicles could spell trouble for Houston’s oil and gas sector, a new report suggests. But the oil and gas industry stands to benefit from potential sluggishness in U.S. adoption of EVs.

If worldwide EV adoption rises as expected, global oil demand could fall by five million barrels per day by 2040, accelerating the closure of about 40 oil refineries, says the report, published by energy research and consulting firm Wood Mackenzie. The firm’s North American hub is in Houston.

Those closures might spell trouble for refinery operators with a sizable Houston-area presence, including BP, ExxonMobil, Marathon, Saudi Aramco, and Valero. In 2025, the five companies collectively earned roughly $33 billion from downstream operations, including refineries. One caveat: Each company assigns a different definition to “downstream.”

Refineries in Organization for Economic Co-operation and Development (OECD) countries, including the U.S. but excluding Middle Eastern heavyweights, “are most at risk due to their high energy costs and carbon prices,” the Wood Mackenzie report says.

On the flip side, an abundant U.S. oil supply means American drivers have less of an incentive to switch from traditional cars to electric vehicles, despite stubbornly high fuel prices, according to the report.

Wood Mackenzie predicts EVs will account for 20 percent of the U.S. personal and commercial vehicle fleet in 2040, up from three percent in 2025. That compares with a global forecast of 25 percent in 2040, up from 4 percent last year.

Another U.S. roadblock to EV adoption cited in the report: the country’s relative lack of advanced battery manufacturing.

“Without advanced battery technologies, the U.S. auto sector is at risk of ceding its home market to non-Chinese EVs and falling behind competitors internationally,” the report says.

Furthermore, according to the report, Chinese investment in EV manufacturing in the U.S. probably will remain a no-go and tariffs on Chinese EV imports likely won’t be lifted, even if Democrats resurrected EV incentives following a White House win in 2028.

“Competition among EV manufacturers in international markets will only intensify,” the report notes. “Companies that can offer competitive products in high-growth markets will be best positioned for long-term success.”

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