Data Centers Bring Critical Water Challenges to Drought-Ridden Texas

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Written by Eric Funderburk for IIR News Intelligence (Sugar Land Texas)

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Summary

Texas leads the nation in AI computing capacity, and its business-friendly environment is encouraging more data centers to be constructed. The problem? Data centers and their associated power sources consume a lot of water, and most of the state faces drought or near-drought conditions.

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Leading in AI Capacity

In November 2025, Texas Royalty Brokers, which normally deals in issues involving mineral rights, published a study regarding artificial intelligence (AI)-capable data centers in the United States and found Texas has more AI computing capacity than any other state.

The study took several variables into account, organizing 214 AI data centers into 83 "cluster locations." The study accounted for AI-capable chip counts, power use and computing capability and found Texas contained 17 of the 83 clusters, making it the U.S. leader in AI capacity.

That same month, Texas Governor Greg Abbott established the eight-person Artificial Intelligence Systems Advisory Board to help provide guidance for AI adoption, and Google announced it would invest $40 billion to construct three new data centers in the state and strengthen its existing footprint.

Future Growth and Resource Stress

Industrial Info's Global Market Intelligence (GMI) Industrial Manufacturing Project Database contains more than 560 project reports covering existing and future data center developments in Texas. This does not mean data centers would be built in 560 different locations, but refers to locations with multiple buildings that constitute separate parts of an overall project's construction. While not all of these projects will be built, many of them will move forward as planned. Combined, these data centers represent more than $640 billion in estimated total investment value.

And some of these current and pending projects approach colossal sizes. A future data center being developed for Hood County in Central Texas, for example, includes project reports for more than 40 separate buildings weighing in at more than $60 billion in overall investment. Fermi America's foray in the Texas Panhandle, already under construction but paused due to a lack of permitting, represents one of the largest data center developments in the world.

Meanwhile, Industrial Info is tracking the OpenAI-led Project Stargate involving multiple developers bringing an estimated $115 billion in planned construction spanning upwards of 50 data center buildings at multiple campuses in the state.

These are big facilities that require large amounts of water and power, with the necessary power facilities adding even more to the water burden. A January 2026 report from the Houston Advanced Research Center, a nonprofit agency that covers energy and water issues, found that existing Texas data centers consume around 25 billion gallons of water each year, with an upper-end estimate of requiring 161 billion gallons annually by 2030.

The natural gas and nuclear power plants used to power these large complexes also require significant water, adding to a location's water burden. NRG Energy already has applied to construct a 1,200-megawatt (MW) natural gas-fired power plant near the Hood County development, while Fermi's complex on 5,800 acres near Amarillo calls for primarily for gas-fired plants and a four-reactor nuclear power plant.

A federal report estimated that indirect water consumption for data centers (primarily for power) consumed roughly 211 billion gallons in 2023, or 1.2 gallons per kilowatt-hour. With much larger consumption and much more power required to fuel a growing number of AI data centers, this water footprint is destined to grow.

And this could be a problem for Texas, which in no way, shape or form has a surplus of water.

Texas Water Shortage

Most of Texas, in fact, faces a water deficit. The National Integrated Drought Information System (NIDIS), a federal monitoring system signed into law in 2006, classifies 73.6% of Texas' land area as being under drought conditions, ranging from "moderate" to "exceptional" drought, with another 24.4% of the state facing "abnormally dry" conditions, meaning that around 98% of the state faces a water deficit to some degree.

And yet the water-craving data centers continue coming thanks to the state's business-friendly atmosphere, and while concerns are starting to mount, a lack of requirement regarding a new data center's water consumption coupled with a state Water Development Board that formulates broad plans only once every five years, means data center development and available water resources could be heading on a collision course with few solutions.

Click on the image at right to see the NIDIS' current map of Texas water conditions.

Some Plans in the Works

Texas has taken some steps in regard in to its water policy, but few measures specifically account for the state's influx of data centers. Last November, Texas voters passed Proposition 4, a $20 billion package aimed at improving water resources. The fund will use up to $1 billion in state sales tax revenues each year for future water supply projects and existing projects. However, this fund doesn't appear to do much to negotiate any policies alleviating the strains caused by future development with scarce resources, but features more a strengthening of existing infrastructure with suggestions of coastal-area projects involving desalination.

While none of the funds have been issued yet and will not be until 2027, the Water Development Board's frequently asked questions regarding the statute stresses aspects such as conservation, public awareness and water-loss mitigation, but little in the way of establishing policies limiting industrial water use.

Long Water-Planning Cycles

The last report by the water board was issued in January. The board used 2020 census data to arrive at an estimated state population growth of more than 70% by 2070, rising from 29.7 million in 2020 to 51.5 million by 2030. Most of the growth is expected to occur in the Dallas-Fort Worth and Houston metro areas as well as South-Central Texas, which includes San Antonio.

While the report's water demand projections include special breakout sections for mining, irrigation and livestock, municipal demand and power plants, no specific space is given to what may be Texas' largest growing industrial space--data centers--and only a few more projects comparable to the Fermi, Hood County and Stargate complexes could significantly grow the state's expected water demand.

Complicating matters even more, data centers are not required to report figures regarding their water consumption, nor are planned facilities required to provide estimates of their future water use. This may be set to change, at least in regard to existing facilities, as the Texas Public Utilities Commission and the Texas Water Development Board announced last week they will team up to begin surveying the water consumption of existing data center and crypto currency-mining operations. However, monitoring existing usage doesn't do much in the way of planning for the future.

Texas Counties Have Little Say

A lack of control over large developments was demonstrated by commissioners of Hood County, where Sailfish Digital Ventures' 40-building data complex is set to be constructed along with an NRG gas-fired power plant. County commissioners held a meeting to vote on placing a moratorium on large industrial developments, calling for a six-month pause to allow leaders to study the impact on area resources (including water) as well as on the life of residents.

Learning of the meeting, a state senator posted an open letter to Texas Attorney General Ken Paxton informing him that the proposed moratorium was not allowed under Texas law as that right is reserved for municipalities, not counties. As most of the larger, hyperscale data centers are being planned for and built on unincorporated land, this diminishes the odds of any sort of action or concerns of local governments and community members. For more on this, see February 13, 2026, article - Texas Lawmaker Pours Cold Water on County Moratorium for Data Center.

More on the Horizon

In addition to the Stargate, Fermi and Hood County data centers, there are several more hyperscale, AI-positioned data centers on Texas' horizon--in addition to the smaller mid-scale utilities that also loom. Among the other larger and hyperscale data center project planned for Texas are:

• Google's data centers in north Texas. The major part of the company's plans for $40 billion investment in the state call for two complexes in Haskell County, in northwest Texas, and another campus in Armstrong County, in the Texas Panhandle. Industrial Info estimates that these campuses will require more than $20 billion in investment.
  
  Industrial Info is tracking planned projects in Armstrong County to construct more than 1,000 MW of gas-fired power. And in Haskell County, multiple wind, solar and battery storage projects are in the cards, as well as the possibility of 600 MW of nuclear power from microreactors.
• "Data City, Texas" would sit on a 50,000-acre site near Laredo, in the severely water-stressed south of the state. This facility is expected to encompass up to 15 million square feet of data center space and require 5 gigawatts of power, which is planned to be obtained from renewable sources. Construction of the first phase, planned to kick off this year, would encompass approximately 1 million square feet and 300 MW of power. While not associated with the data center, Industrial Info is tracking the planned construction of a 400-MW gas-fired power unit in Webb County, where the data center is located. The National Integrated Drought Information System (NIDIS) classifies the area of as being under "moderate" to "extreme" drought conditions.
• MSB Global Services' Matrix data center complex in Sulphur Springs, in the northeast corner of the state. MSB is planning 30 buildings that would require thousands of megawatts of power in another water-stressed area.
• Prime Data Centers' Lockhart campus in southern central Texas would require around $1.3 billion in investment for up to nine buildings. Active construction of a 190-MW gas-fired peaking unit employing 10 reciprocating internal combustion engines is wrapping up in the data center's location of Caldwell County. Industrial Info is tracking more than 3,300 MW of potential solar and battery energy storage projects in adjacent counties (although 1,600 MW of this comes from two projects that Industrial Info has rated as having a low probability of moving forward as planned) as well as a 1,200-MW natural gas-fired power plant.
• Skybox Data Centers' Hutto development near Austin, requiring up to 600 MW of power. Industrial Info is tracking more than 3,200 MW of potential natural gas-fired power projects in counties adjacent to Williamson County, where the data center will be located.
• CyrusOne's Laguna Park campus in the Dallas-Fort Worth area. This project has led to power company Calpine's plans to construct a 190-MW natural gas-fired, simple-cycle power unit nearby.
• CloudHQ's 3 million-square-foot complex near San Antonio, an area highlighted by the Water Development Board for its expected large population growth. Industrial Info is tracking more than 2,100 MW of potential natural gas-fired power projects in the data center's home county, Bexar, which the NIDIS classifies as being 100% under extreme drought conditions.
• Rowan Digital Infrastructure's seven-building Cinco development in Medina County. All of Medina County is classified as being under "severe" or "extreme" drought conditions by the NIDIS. Medina County is next to Bexar County.

And there's more on the way and under construction--lots more.

Water Conservation Methods

Many of these complexes are attempting to minimize their water use. Fermi, for example, said it is developing plans to help mitigate water use in its world-leading data and power complex near Amarillo. Among Fermi's moves in this direction is the signing of a memorandum of understanding with Budapest-based MVM EGI Zrt, which Fermi describes as "one of the world's leading hybrid dry-wet cooling innovators," to support the natural gas and nuclear power units, which could add up to more than 11 gigawatts of power generation. MVM EGI's design will rely primarily on air-cooling systems, which minimize water use, as well as closed-loop water systems that reduce the need for new freshwater inputs. Fermi also noted the two companies are evaluating the use of recycled and reclaimed water. Retention ponds used for water storage could also be covered with solar panels, reducing evaporation in the arid climate and providing emissions-free energy. Fermi expects the cooling system to be completed in 2034, in line with the phased development of the nuclear and gas-fired units.

The Fermi complex and Amarillo sit atop the Ogallala Aquifer, which spans 174,000 square miles across eight states, including the Texas Panhandle and West Texas. A 2022 paper from the University of Chicago, along with other sources, noted that the acquirer is being significantly drained by agricultural irrigation and recharges by an average of only 1 inch each year, fed exclusively through rainfall and snowmelt, which are not prevalent in the semiarid climate. Long before the data center boom, the Texas Water Development Board's Water Plan for 2007 predicted the aquifer's level would fall 52% between 2010 and 2060. At the time, the Ogallala accounted for 40% of Texas' water use, and this was long before AI and hyperscale data centers had entered the mainstream popular conscience.

The Ogallala aquifer represents a major, but not the only, source of water for Amarillo. In October, the city signed an agreement to provide Fermi with up to 2.5 million gallons of water per day. Fermi is paying $8.72 per 1,000 gallons, the highest industrial rate Amarillo has ever charged, but a price that Fermi reportedly accepted without any attempt at negotiation, leading some city councilors to speculate that the opening price should have been set higher.

But Texas isn't the only state reliant on the Ogallala. It also spans portions of Colorado, Kansas, Nebraska, New Mexico, Oklahoma, South Dakota and Wyoming, and all the data centers and power plants there.

So, while Texas may have water problem fueled by data centers, the issue is really a national one. Texas at some point may implement more stringent planning and accountability processes regarding industrial water use, particularly for data centers--but whether this can occur before reaching a critical, "no-going-back" threshold remains to be seen.

For more information on Texas data centers, water needs, meteorological patterns including a seasonal rainfall outlook, see February 19, 2026, article - A Texas Standoff: AI Growth Collides with Resource Limits.

Key Takeaways

• Texas leads the U.S. in AI computing capacity, with many more data centers on the way.
• Most of Texas is under drought conditions, putting the heavy water use of data centers and associated power plants in the spotlight, as no immediate end to the drought is in sight.
• Texas has made some initial moves to strengthen its water availability, but few policies exist that directly involve data centers.
• At the moment, the state's data centers do not have to report their water consumption, nor do planned facilities have to provide an estimate of their future water use.

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  About IIR News Intelligence
  IIR News Intelligence is a trusted source of news for the industrial process and energy markets, powered by Industrial Info Resources' Global Market Intelligence (GMI).
  
  About Industrial Info Resources
  Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 250,000 current and future projects worth $30.2 Trillion (USD).