Chevron is building a dedicated large-scale power generation facility to supply a Microsoft AI data center, signaling direct hyperscaler-energy-provider partnerships to overcome grid constraints.

Chevron has signed a 20-year power agreement with Microsoft to support a massive AI data center project in Texas. The deal will enable Chevron to build a large-scale natural gas-fired power plant adjacent to the Microsoft facility in what is known as Project Kilby, one of the largest co-located gas power and data center projects in the country.

U.S. data center power demand is projected to double to 77 gigawatts by 2030, according to BloombergNEF, as AI companies race to secure reliable power sources. Project Kilby will deliver approximately 2.67 gigawatts of capacity upon completion—enough to power around 2 million homes. Chevron and its partner Engine No. 1 will build this capacity through a phased, modular approach, supplying incremental power as Microsoft requires additional energy for its data center campus. Chevron expects to make a final investment decision on the project, which could cost around $7 billion, by the end of 2026, positioning the company to begin supplying power by 2028 with full build-out continuing into the 2030s. GE Vernova will supply most of the gas turbines and associated electrical infrastructure, while Caterpillar subsidiary Solar Turbines will provide additional capacity.

Co-locating the power generation facility with the data center will provide Microsoft with the reliable electricity needed for its AI and cloud operations while reducing strain on the regional power grid.

For Chevron, developing gas-fired power plants represents a new business platform. The company will leverage its natural gas resources in the Permian Basin and its expertise executing large-scale capital projects. By converting locally produced Permian Basin gas to electricity, Chevron will generate more predictable cash flow backed by the Microsoft contract, reducing commodity price volatility in its traditional oil and gas operations and supporting continued dividend growth. The company expects to achieve mid-teens returns on its investment.

Project Kilby is likely the first of multiple gas-fired power projects Chevron plans to develop to support AI data centers. When Chevron formed its partnership with Engine No. 1, the companies aimed to deliver up to 4 gigawatts of projects with potential for further expansion, positioning Chevron to capitalize on the massive power demands of AI infrastructure growth.