Prologis and U.S. Interior Secretary map future of supply chains and AI, with energy serving as a key driver

In a wide-ranging discussion, Hamid Moghadam, co-founder, chairman, and CEO of San Francisco-based real estate investment trust Prologis, and United States Secretary of the Interior Doug Burgum took a forward-looking approach to key supply chain drivers and their respective impacts, with an emphasis on energy reliability and Artificial Intelligence (AI), at Prologis’ annual Groundbreakers event, which was held yesterday in Los Angeles.

Looking at energy security and strategy, Burgum explained that the White House’s approach is focused on peace and prosperity, with energy diplomacy exploding around the world, with a domestic focus on energy abundance.

“Energy dominance is really energy abundance,” said Burgum. “We want to have the energy to power the next generation of innovation in AI. We want to support the kinds of things great companies, like Prologis, [are] doing, and all of their important logistics customers. We need more than ever affordable, reliable, and low-cost energy that runs seven by 24 and right now through the formation of the National Energy dominance Council—the national energy abundance Council in the White House—we're working to shorten permitting times, drive capital, help the private sector get the power they need for prosperity to occur at home. So, it is nothing short of prosperity home, peace abroad, and of course, national security is driven by energy security.”

In terms of what energy dominance and energy abundance means for a logistics real estate giant like Prologis, coupled with the company’s customers’ needing more energy, Moghadam observed that the real key is listening to customers.

To that end, he noted how real estate and real estate costs represent around 3%-to-5% of total supply chain costs.

“But we have the relationships with the customers, often for five-to-10 years, and we just observe their needs, and their needs are much bigger than that,” he said. “And one area that comes to mind is energy, because you use energy inside the buildings, in terms of moving things around. You use energy, obviously, for transportation. So, we found ourselves getting dragged into the energy business. And obviously we had a lot of surfaces in our properties that weren't being monetized and used, so we increasingly started turning that into solar. We're doing it because it's the cheapest form of energy that we can produce for our customers.

But it's not the only form of energy. And in fact, our business is now more of an infrastructure business beyond real estate, and now that physical infrastructure business has transformed to a digital infrastructure business with data centers, and we're spending a lot of time and money on data centers, and they have voracious appetite for energy, way beyond what renewables alone can produce. So, the answer to energy and our infrastructure business is very simple, energy from all sources and then some, and we need to apply everything that we have to solve that problem. It's not just owners, it's advanced manufacturing. It's the electrification of the fleet of trucks. It's everybody's plugging everything into the wall, and we need to figure out where all that power is going to come from.”

In explaining the role of the National Energy Dominance Council, which he serves as the Chairman with Secretary of Energy Chris Wright serving as Vice Chairman, and its role in advancing the nation’s energy strategy, Burgum said its focus is on working together to cut through all the silos of government to make sure it can help companies like Prologis and other industry stakeholders move more quickly, likening it more to a Governor’s economic development organization than a policy group.

“We don’t write papers, but what we are charged with is we are going to unleash energy in America to support the kinds of transformation that Hamid is talking about at Prologis, [because] he understands that energy drives every aspect of his business and for Prologis’s customers.”

What’s more, Burgum added that in order to have a prospering economy and achieve the needed growth, reliable, affordable energy is vital. And he also said there is a need to drive the ideology out of energy production and get back to the basics of reliable, affordable energy.

“We have to increase the supply of all forms of energy, in all forms of reliable, affordable baseload energy,” said Burgum. “We've over rotated too far in terms of highly subsidized intermittent forms of energy that's causing real problems on our grid. But the energy strategy, or whether it's hydro, whether it's geothermal, whether it's the rooftop solar that Prologis has on its 1.2 billion square-feet of space. All of these are like great ideas, particularly when we can have the energy produced near where it is consumed.”

A lot of time is spent in the U.S. trying to build horizontal infrastructure, pipelines, and transmission lines, and there are groups of people who spent a lot of time fighting the construction of that horizontal infrastructure, part of where the U.S. is going to get the energy to be able to achieve what is needed for the U.S. to win the AI arms race against China, according to Burgum. Which he called a particular objective and important thing —and is the existential threat is losing that AI arms race.

“We've got to be thinking about, how do we build these artificial intelligence factories, the place where we're manufacturing intelligence, close to where the power is produced and just skip the years of trying to get permitting for pipelines and transmission lines,” he said.

When asked about the energy priorities of Prologis’s customers, Moghadam was direct, saying they want abundant energy at an economic cost, adding they want it to be reliable and not be the constraint on the growth of their business, even though it is becoming one.

“If you talk about the data center business, clearly, energy is the bottleneck right now, but once this advanced manufacturing gets going, that's going to become a bottleneck,” he said. “So, we got to solve this problem ahead of that demand really taking off. We need to unpack this idea of stopping to build transmission lines everywhere. If you have an AI factory, it's much more efficient to transmit the electrons and the information that's processed in that AI factory than to build pipelines, getting that energy to somewhere else and doing that work somewhere else. That's really important. And I think the other thing this is about…I don't know why we have set up this contrast between renewables and traditional forms of energy. I think we need it all, and then some.”

Burgum subsequently made the case that getting power closer to where the needs and demand are means that AI factories need to go to where the power is.

Which Moghadam followed up, stating that while there is some capacity on the grid, it is not all exhausted, with all location decisions being made are based on where the power is.

“There is a secondary embedded capacity in the grid too, because the grid is not always maxed out,” he said. It has to run less than at full capacity. With AI and other technologies, you can squeeze more energy out of the existing capacity, more effective energy. But those are solutions that whether it's two years, three years or five years, we're pretty much going to be out of that. We have to add grid capacity, and we have to add capacity on premises where these factories are placed.”

That is something Prologis is very focused on, with more than 150 employees focused on energy-related efforts, according to Moghadam, with the caveat that it is not just for data centers—it is for everything.

“It used to be ‘location, location, location, and I would say now it's location, location, and the third location is replaced with energy, because that's what the world needs. I think these AI factories, just like Secretary Burgum said, are all going where the existing power is. That's sort of chapter one of this story. Chapter two is increase in on-premise production of energy. And chapter three, which is the one I'm really excited about, is when the LLM (large language model) processing that's happening in this big AI factories is no longer the main game, but inference close to population centers is where the game is, because latency will become a big factor. Latency is not as big a factor when you're dealing with the large language models. That's where Prologis sees a huge opportunity, because we have 6,000 buildings in the major population centers in the world that kind of look like data centers, except for the inside, and we know how to turn them into data centers. We're very excited about that infill data center inference opportunity.”