Key Takeaways:
Chevron will build a 2.67-gigawatt natural gas plant in West Texas to supply electricity directly to a Microsoft-operated AI data center under a 20-year contract.
Chevron committed $7 billion to build a 2.67-gigawatt natural gas plant in West Texas, securing a 20-year power purchase agreement with Microsoft for a co-located AI data center that will operate independently of the public grid.
"The collaboration enables customers across industries to power the next chapter of American innovation while reducing pressure on existing grids," said Chris James, founder and chief executive officer of Engine No. 1 and Joulent, the newly launched energy company behind the project.
The facility, known as Project Kilby, will include at least seven GE Vernova turbines with initial capacity of 2.5 gigawatts, scalable to as much as 5 gigawatts. First power is expected by late 2027 or early 2028. Microsoft committed to a closed-loop cooling system that the company said uses less water annually than a typical fast-food restaurant.
The deal highlights a structural shift in U.S. energy demand: AI workloads require massive, round-the-clock power that existing grids cannot reliably supply. For Chevron, the agreement diversifies revenue beyond oil production into energy infrastructure for technology companies. For Microsoft, it secures dedicated capacity for AI expansion — but raises questions about how a 20-year fossil fuel commitment aligns with the company's pledge to be carbon negative by 2030.
Project Kilby will be built in Pecos, Texas, in the Permian Basin, America's largest oil field. Chevron's subsidiary Energy Forge One LLC will construct and operate the power plant hub, with Microsoft's data center campus drawing electricity directly from the site. The project is expected to create more than 6,000 construction jobs at peak build-out and hundreds of permanent operational roles once completed.
The deal is the largest collaboration to date between a U.S. oil and gas major and a Big Tech company for dedicated power infrastructure. Joulent, the energy company formed by Engine No. 1 in partnership with GE Vernova, was launched specifically to develop multi-gigawatt power solutions for compute-intensive industries. Its "Across-the-Meter" model builds new generation capacity co-located with customer demand while eventually connecting to the regional grid.
"AI and cloud are advancing at a pace that requires a new level of coordination between energy and infrastructure," said Noelle Walsh, Microsoft's president of cloud operations and innovation.
Global AI capital expenditure is projected to reach $725 billion, with power supply emerging as one of three critical bottlenecks alongside memory and optical bandwidth, according to industry estimates. Natural gas has become the preferred bridge fuel for hyperscale data center operators, given the timeline constraints of renewable energy and nuclear projects.
Chevron's stock slipped on the announcement, suggesting investor concerns about the capital intensity of the $7 billion investment and the company's shift toward energy infrastructure rather than traditional oil production. The decline also reflects broader uncertainty about the returns on dedicated power assets tied to a single customer under a two-decade contract.
This article is for informational purposes only and does not constitute investment advice.
