Chinese company DeepSeek’s announcement on Jan. 27 that it had developed a cheap AI chatbot blasted tech stocks, and the natural gas market— with data centers part of the long-term demand picture—suffered the aftereffects.

Chip company Nvidia lost about $593 billion in value, a record one-day loss. Meanwhile, gas-focused E&Ps, already suffering from forecasts calling for warmer weather, saw share values pummeled.

“The fear as it relates to DeepSeek is that it could mean less investment in data center power is needed and thus less natural gas is needed,” said Hinds Howard, analyst for CBRE Investment. “This all relates to future growth of natural gas demand.”

According to a Morgan Stanley analysis, gas E&Ps sold off at an average of 6% on Jan. 27. The stock price for Expand Energy (EXE), the largest gas producer in the U.S., started the day at $106 per stock unit and immediately fell by 5.6% to $100 per stock unit as markets opened. EQT Corp. fell harder, with stocks opening at $53.78 per share before and plummeting by 10% to $48.36 per share as the trading day began.

Midstream companies also took it on the chin. Kinder Morgan (KMI), which just announced a fourth-quarter earnings record, started the week at $30.27 per share and was trading at $27.31 per share by Jan. 28. Williams Cos. began Jan. 27 at $59.65 per share and had dropped to $54.82 per share the next day.

Some tech analysts called DeepSeek’s move a “Sputnik moment,” referring to the Soviet Union's unexpected launch of a satellite in 1957 that caught the U.S. off guard and started the space race.

AI requires a huge number of computer chips, each using more than nine times the electricity power of traditional chips. Tech companies have started a massive buildout of AI data centers, with natural gas expected to play an integral role in supplying fuel for electricity.

Most recently leaders of Project Stargate, a $500 billion AI joint venture, announced their intention to build their first data center in Abilene, Texas—a city that lies next to several large-diameter natural gas pipelines connecting the Permian Basin to the Dallas-Fort Worth metro area.

However, DeepSeek claimed to build its program for less than $10 million, using Nvidia’s lower performance A100 chips. Tech analysts tried to verify DeepSeek’s claims after the announcement, and some said the company may have fudged on the costs and performance details.

However, if DeepSeek was able to develop its AI program on the cheap, requiring much less power, power demand growth in the U.S. may not meet original expectations, Howard said.

After forecasts for a warmer-than-expected February, natural gas prices had already turned bearish. After Henry Hub prices hit over $4/MMBtu on Jan. 26, the price fell to $3.60/MMBtu on Jan. 27 and then to $3.51/MMBtu during Jan. 28 trading.

While bearish now, Morgan Stanley forecasts natural gas demand will continue to trend upward.

“We see the move as overdone and recommend buying the pullback,” analysts said.

In the near term, U.S. natural gas demand will continue to edge up with growth in LNG exports. Two new LNG export plants went online before the end of 2024 and will continue to ramp up production over the next two years. Overall, U.S. LNG export capacity is expected to increase by about 85% by 2028, adding about 11 Bcf/d of natural gas consumption.

President Donald Trump’s cancellation of the LNG permitting “pause” initiated by the former White House administration is expected to encourage other LNG export projects to reach final investment decision, supporting natural gas demand growth into the 2030s.

For power growth, AI has received attention but is one of several trends affecting the electrical sector. Onshoring of manufacturing and an industrial move towards electrification will both continue to add demand for electricity, and natural gas remains the preferred power source on the market, Morgan Stanley analysts said.

Enverus Intelligence Research also called for a continued strong market for natural gas. On Jan. 28, the company released a report showing strong prices above $3.50/MMBtu would increase drilling activity as 2025 progresses.

Howard said U.S. tech companies will eventually determine the outcome for natural gas and data centers.

“The data points going forward to indicate the path forward will be when the big hyperscaler data center investors like Microsoft, META, Alphabet, etc., come out with earnings and stand firm on their massive data center spending plans,” he said. “But there is no clear signpost for what the market will feel around the future growth potential of natural gas.”

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