Microsoft turns to Chevron’s gas to power a Texas data centre

The Chevron Microsoft gas deal hands the oil major a 20-year contract to power a giant West Texas data centre. For a company that built its AI plans on renewables and nuclear, that is a sharp turn.

Chevron will power one of the largest data centres in the United States by burning natural gas. The oil major announced the 20-year deal with Microsoft on Monday.

The power plant is called Project Kilby. It will rise near the city of Pecos in Reeves County, in the heart of the Permian Basin.

Chevron says it will deliver first power in 2028. The plant should ramp up to 2.67 gigawatts over time, roughly enough for 2 million homes.

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That makes it one of the biggest single sources of data-centre power yet committed in the country. It also complicates Microsoft’s position on fossil fuels.

An off-grid bet in the Permian

The defining feature is that the project stands apart from the public network. The plant will make its own power on site. It will not draw from the Texas grid or lean on a local utility.

Jeff Gustavson, Chevron’s president of New Energies, said consumers already feel the effect of surging power demand. “We specifically designed this, in this part of the country, to avoid any of that,” he said.

The location is the point. The Permian Basin is one of the world’s biggest oil fields. It pumps out so much gas as a byproduct that pipelines often cannot move it all.

Operators flare off the excess as waste, which keeps local prices low. “This is the most abundant gas basin in the country, maybe the world,” Gustavson said. The plant, he added, “brings demand to the basin to use that gas and not waste it.”

Most of the power will come from large GE Vernova turbines. Solar Turbines, a Caterpillar subsidiary, will supply more.

Chevron and its partner have ordered seven GE Vernova turbines. That hardware usually carries a backlog of years.

The build will use brackish groundwater rather than freshwater. The plant will also fit catalytic reduction systems to cut nitrogen-oxide emissions.

Chevron says the site will support almost 2,000 jobs. It expects more than $10bn in state and local tax revenue over the plant’s life.

Chevron is not building this alone

Chevron has teamed up with the investment fund Engine No. 1 to develop Project Kilby. The fund holds an option to buy half the project and cover the same share of the costs.

Chevron has not said how much the build will cost. When Bloomberg first reported the talks in April, people familiar put the figure at about $7bn.

Chevron expects a final investment decision by the end of 2026. It says the project targets mid-teen returns.

Earlier reporting had pointed to a 2027 start. The 2028 target marks a slightly longer runway.

For Chevron, the deal works as a hedge against an uncertain oil future. It also sells gas the company already pulls from the ground. The plant should throw off cash that does not track oil prices.

“In our peer group a lot of others are talking about doing things like this,” Gustavson said. “We’re now actually doing it.”

Microsoft’s fossil-fuel turn

For Microsoft, the calculation is about raw supply. It keeps expanding its data centres as it races Alphabet and Amazon in artificial intelligence. The company plans to double its data-centre footprint within two years.

Noelle Walsh, Microsoft’s president of Cloud Operations and Innovation, framed it as a scale problem. “Our agreement with Chevron helps ensure we’ll have dedicated, large-scale power,” she said.

The longtime backer of OpenAI has mostly bought renewable energy, and increasingly nuclear. Both offset the carbon dioxide its data centres pump out.

Gas is a different kind of commitment. It is reliable and available at the scale that AI’s hungriest models demand. It also ties one of the world’s largest tech firms to a fossil fuel for two decades.

It matters most in Europe, where Brussels leans on Big Tech to align data centres with climate goals. The tension is not unique to Microsoft.

The power crunch behind the deal

The United States is on track to double its data-centre capacity to 77 gigawatts by 2030, according to BloombergNEF. That surge already strains the grid and pushes up household bills.

The strain has stirred a political backlash in several states. Regulators struggle to keep up. Federal officials now want to fast-track grid connections for new sites.

Texas leads the country with 33 gigawatts of planned data-centre power projects, ahead of Virginia. Most remain early-stage proposals rather than steel in the ground.

Renewables deliver power when the sun shines, not when the servers ask for it. China faces the same mismatch as it tries to run AI clusters on green energy.

Project Kilby makes its own power away from the grid, dodging both the queue and the public anger. Whether the model spreads is another question. It depends on how many oil majors decide that selling electricity to AI beats selling crude.