Microsoft and Chevron have signed a 20-year power purchase agreement to supply electricity for a Texas data center.
Chevron Corp. has signed a 20-year agreement with Microsoft Corp. to supply natural gas-fired power for a proposed West Texas data center, which could become one of the largest in the United States. The partnership is designed to deliver the substantial, reliable electricity required to fuel artificial intelligence’s energy-intensive models. It aligns with Microsoft’s plan to double its data center footprint over the next two years. As the longtime backer of ChatGPT maker OpenAI, the tech giant is aggressively expanding its AI infrastructure to compete with Alphabet Inc. and Amazon.com Inc.
Named Project Kilby, the dedicated power plant is scheduled to deliver its first electricity by 2028 and will gradually ramp up to 2.67 gigawatts. Houston-based Chevron, which is developing the facility alongside investment fund Engine No. 1, plans to make a final investment decision later this year. The project will generate its own power, operating independently of the local grid or utilities, according to Jeff Gustavson, Chevron’s president of New Energies.
The initiative arrives amid mounting strain on national infrastructure. According to BloombergNEF, U.S. data center capacity is projected to double to 77 gigawatts by 2030. This rapid expansion is placing severe pressure on the power grid, already driving up consumer electricity costs and sparking political backlash across the country. Addressing these concerns, Gustavson stated, “Consumers are concerned about and are already feeling the effect of power-demand growth. We specifically designed this, in this part of the country, to avoid any of that.”
Located near Pecos, Texas, the facility will harness cheap natural gas from the Permian Basin—America’s largest oil field—to feed several large GE Vernova Inc. turbines. The Permian Basin produces significant volumes of natural gas as a byproduct of oil extraction, often exceeding pipeline capacity and resulting in routine flaring. This oversupply drives down local gas prices, providing Chevron with a distinct competitive advantage. “This is the most abundant gas basin in the country, maybe the world,” Gustavson said. “The power plant brings demand to the basin to use that gas and not waste it.”
Commercially, Chevron and Engine No. 1 have placed firm orders for seven GE Vernova natural gas turbines, which currently face multi-year delivery backlogs. Engine No. 1 holds an option to acquire a 50% stake in the project and finance an equivalent share of the capital expenditures. While Chevron has not officially disclosed the total project cost, individuals familiar with the development pegged the figure at approximately $7 billion in April.
Texas currently leads the nation with 33 gigawatts of planned data center power projects, surpassing Virginia, though most Texan proposals remain in early stages while Virginia has more facilities under construction, according to BNEF. Highlighting the strategic shift toward dedicated power infrastructure, Gustavson added, “In our peer group a lot of others are talking about doing things like this. We’re now actually doing it. We think that differentiates us.”