Chevron is building a massive power generation facility specifically to support Microsoft's AI data center expansion.

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

AI data centers consume substantial power. U.S. data center power demand is projected to double to 77 gigawatts (GW) by 2030, according to BloombergNEF. As a result, AI leaders such as Microsoft are securing power sources to support their growth strategies.

Project Kilby will deliver approximately 2.67 GW of capacity upon completion—enough to power around 2 million homes. Chevron and its partner, Engine No. 1, would build the capacity through a phased, modular approach to supply incremental power as Microsoft requires additional energy for its data center campus. Chevron expects to make a formal Final Investment Decision (FID) on the project, which could cost around $7 billion, by year-end, positioning it to start supplying power by 2028, with the full build-out continuing into the 2030s. GE Vernova would supply most of the gas turbines and associated electrical infrastructure, while Caterpillar subsidiary Solar Turbines would provide additional capacity.

Co-locating a large-scale power generation facility with the data center will enable Microsoft to obtain the reliable electricity needed for advanced compute requirements while reducing strain on the regional power grid.

Developing gas-fired power plants represents a new business platform for Chevron. The company would supply the facility with locally produced gas from its Permian Basin resource base. By converting this gas to electricity, Chevron will generate more predictable cash flow backed by the 20-year power supply contract, helping reduce commodity price volatility from its oil and gas operations and supporting consistent shareholder returns. Chevron expects to generate a mid-teens return on its investment.

Project Kilby is likely the first of many gas-fired power projects Chevron will develop to support AI data centers. When Chevron formed its partnership with Engine No. 1 early last year, it aimed to deliver up to 4 GW of projects, with potential to expand further.