Chevron Corp. signed a 20-year deal with Microsoft Corp. to provide natural-gas-fired power for a proposed West Texas data center, which could be one of the biggest in the U.S.
The proposed plant, Project Kilby, is expected to start producing power by 2028 and will ramp up to 2.67 gigawatts over time, Houston-based Chevron said in a statement Monday. That’s enough to power more than 530,000 Texas homes. The oil giant, which is collaborating on the development with investment fund Engine No. 1, plans to make a final investment decision later this year.
Bloomberg News previously reported the companies were in exclusive talks over a long-term power deal.
Microsoft is aggressively building data centers as it competes with Alphabet Inc. and Amazon.com Inc. to expand in artificial intelligence. The longtime backer of ChatGPT maker OpenAI plans to double its data-center footprint over the next two years. The partnership with Chevron, one of the country’s biggest gas producers, is expected to supply the large-quantities of reliable power needed for AI’s energy-hungry models.
Overall, the U.S. is expected to double its data center capacity to 77 gigawatts by 2030, according to BloombergNEF. That is expected to put severe pressure on the power grid and is already raising costs for consumers, prompting political backlash around the U.S.
Microsoft has a target to match 100% of its hourly electricity use with renewable energy purchases by 2030 but is now considering delaying or abandoning that goal, Bloomberg reported in May. It comes as Big Tech is racing to secure enough energy to meet the demands of AI.
Chevron’s plant will feed cheap gas from the Permian Basin, America’s biggest oil field, to several large GE Vernova Inc. turbines that will power a data-center campus that Microsoft plans to build on that site near the city of Pecos, Texas. The project will generate its own power, meaning it will not draw from the grid or involve a local utility, Jeff Gustavson, Chevron’s president of New Energies, said in an interview.
“Consumers are concerned about and are already feeling the effect of power-demand growth,” he said. “We specifically designed this, in this part of the country, to avoid any of that.”
The Permian Basin is one of the world’s biggest oil fields but also produces natural gas as a byproduct — so much that it’s often too much for pipelines to handle and has to be burned off as waste. This results in cheap local prices that Chevron says are a 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.”
Chevron and Engine No. 1 have committed orders for seven GE Vernova natural gas turbines, which typically have a years-long backlog. Engine No. 1 has the option of buying a 50% of the project and funding the same proportion of capital spending. Chevron has not yet revealed how much it will cost. People familiar with the project pegged the figure at about $7 billion in April.
Texas has 33 gigawatts of planned data-center power projects, the largest in the country ahead of Virginia, according to BNEF. However, most of the them are early-stage proposals and Virginia has more in construction.
“In our peer group a lot of others are talking about doing things like this,” Gustavson said. “We’re now actually doing it. We think that differentiates us.”
Crowley writes for Bloomberg.
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