Osaka Gas and the Strategic Case for Natural Gas Infrastructure in AI-Driven Energy Markets

The global energy landscape is undergoing a seismic shift driven by artificial intelligence (AI) and the exponential growth of data centers. By 2030, data centers are projected to consume over 945 terawatt-hours of electricity annually-nearly equivalent to Japan's total current consumption according to IEA data. This surge in demand is creating a critical need for reliable, dispatchable energy sources to stabilize grids and ensure uninterrupted operations. Natural gas, with its lower carbon footprint compared to coal and its ability to balance intermittent renewables, is emerging as a transitional linchpin in this new era. Osaka Gas, a key player in Japan's energy infrastructure, is uniquely positioned to capitalize on these trends through its investments in e-methane, battery energy storage systems (BESS), and LNG infrastructure. Yet, despite its strategic alignment with AI-driven energy demand, the company's valuation metrics suggest its long-term projects may be undervalued.

Strategic Alignment with AI-Driven Energy Demand

Osaka Gas has proactively expanded its thermal power capacity, aiming to reach 3.2 gigawatts by 2026 through new gas-fired units in Himeji, western Japan. These projects are designed to offset the retirement of aging thermal plants and meet rising electricity demand, particularly from semiconductor factories and data centers. The company's 622.6-MW third unit at Himeji, slated for 2030, underscores its commitment to addressing the surging need for grid stability. Meanwhile, Osaka Gas is also developing 13 MW of energy storage capacity in 2025, a move that aligns with the growing requirement for flexible energy solutions to manage AI-driven load fluctuations.

The company's e-methane initiatives further highlight its forward-looking strategy. E-methane, a carbon-neutral hydrogen carrier produced via methanation of CO₂ and hydrogen, is being tested at a laboratory scale using SOEC technology. Osaka Gas plans a large-scale demonstration in Nagaoka City and is building a U.S. procurement network to supply over 60% of Japan's 2030 e-methane demand. This aligns with global trends, as AI-driven energy demand in the U.S. has spurred a surge in natural gas sector deals in 2025. By securing e-methane supply chains, Osaka Gas is positioning itself to meet Japan's decarbonization goals while leveraging its existing gas infrastructure.

Undervalued Opportunities in Renewable and Storage Infrastructure

While Osaka Gas's valuation appears inflated based on discounted cash flow analysis and price-to-earnings (PE) ratios, its renewable and storage projects may be underappreciated by the market. The company is installing a 30MW/125MWh BESS at a solar plant in Kyushu, a collaboration with Sonnedix that will become Japan's largest co-located battery storage facility. This project not only enhances grid stability but also enables optimized solar power output, a critical need as AI-driven demand strains existing infrastructure. Similarly, Osaka Gas's biomass power plants in Hyuga and Aichi Tahara, along with its 5 GW renewable energy target by FY2031, align with Japan's "Watt-Bit Collaboration" framework, which encourages co-location of data centers and clean energy projects.

The geographic mismatch between Japan's data center clusters (concentrated in Kansai and Kanto) and renewable energy projects (primarily in Hokkaido and Kyushu) presents an opportunity for Osaka Gas to develop localized renewable infrastructure. By bridging this gap, the company could reduce transmission losses and enhance the economic viability of its projects, particularly as AI-driven demand drives grid modernization.

Valuation Challenges and Market Realities

Despite these strategic advantages, Osaka Gas faces valuation headwinds. A DCF analysis suggests the stock is trading 103.1% above intrinsic value, while its PE ratio of 11.0x, though below the industry average, still exceeds the calculated fair ratio of 8.7x according to the same analysis. These metrics may reflect short-term market skepticism about the company's ability to monetize its long-term projects. However, the broader energy transition context suggests this skepticism may be misplaced.

The global LNG market is undergoing structural changes, with U.S. and Qatari liquefaction expansions expected to increase supply by 2030. While this could lead to price volatility, Osaka Gas's U.S. e-methane procurement network and LNG reselling strategy in emerging Asian markets position it to benefit from shifting dynamics. Additionally, AI-driven predictive analytics are enhancing the efficiency of gas reformers and emissions control in Japan, creating new revenue streams for companies like Osaka Gas.

Conclusion: A Case for Strategic Investment

Osaka Gas's investments in e-methane, BESS, and LNG infrastructure are not merely defensive measures but proactive steps to align with the AI-driven energy transition. While its current valuation appears elevated, the company's long-term projects-particularly in renewable integration and grid modernization-are likely undervalued given the scale of AI-driven demand. As data centers and semiconductor manufacturing reshape energy consumption patterns, Osaka Gas's ability to provide reliable, low-carbon solutions will become increasingly critical. For investors seeking exposure to the energy transition, the company's strategic initiatives present a compelling case, even if the market has yet to fully price in their potential.