SEATTLE (Oil Monster): Chevron signed a 20-year power purchase agreement with Microsoft on Monday to supply electricity from a natural gas plant to a data center the tech company plans to build in West Texas.
At full build-out, Project Kilby is designed to generate approximately 2.67 gigawatts — a figure the company says is roughly equivalent to the electricity needs of 2 million homes — rolled out in phases, the company said. Power is expected to begin flowing to the data center in late 2028, with the site's development extending through the 2030s. The site spans more than 2,000 acres in Reeves County, near the city of Pecos, according to The Wall Street Journal.
GE Vernova turbines will account for the bulk of the plant's output, supplemented by units from Solar Turbines, which operates as a Caterpillar subsidiary. Rather than connecting to the regional transmission system, the on-site plant will operate independently — a design Chevron says was deliberately chosen to insulate local ratepayers from any cost impact. Chevron is collaborating on the development with Joulent, an energy company launched by investment firm Engine No. 1.
Chevron has not disclosed a cost estimate for the project. Those with knowledge of the deal have estimated total costs at roughly $7 billion. The project is targeting mid-teen returns, Chevron said, and expects to make a final investment decision by the end of 2026. Under the arrangement, Engine No. 1 holds an option to take on half the project's ownership and contribute a matching share of the capital investment, according to Bloomberg.
The plant will draw on natural gas from Chevron's existing Permian Basin production. Natural gas volumes in the Permian routinely outrun what regional pipelines can carry, forcing operators to flare the excess — a dynamic that depresses local gas prices. Chevron said that dynamic gives Project Kilby a competitive cost advantage.
"AI is reshaping the global economy, and abundant, affordable, reliable energy is essential to fueling that transformation," Jeff Gustavson, Chevron president of New Energies, said in a statement. "Chevron is uniquely positioned to deliver power to customers with certainty, speed and at a competitive cost, leveraging Permian natural gas and our proven execution capabilities."
Noelle Walsh, Microsoft president of Cloud Operations and Innovation, said in a statement that the rapid growth in AI and cloud computing requires energy infrastructure that can scale quickly.
The tech giant's capital expenditure budget for the year stands at $190 billion, up 61% compared with 2025. Historically, Microsoft has leaned on renewables and, more recently, nuclear energy — including a deal tied to reviving the Three Mile Island plant in Pennsylvania — to address the carbon footprint of its data centers, according to CNBC. The Chevron arrangement signals the company's readiness to add fossil fuel generation to that mix.
Chevron said the project is expected to generate more than $10 billion in state and local tax revenue and support nearly 2,000 jobs in the region.
Courtesy: www.qz.com
