Chevron has secured a long-term power supply agreement with Microsoft that could position the oil major at the center of the rapidly expanding artificial intelligence infrastructure market.
The company announced that its wholly owned subsidiary, Energy Forge One LLC, has signed a 20-year power purchase agreement (PPA) with Microsoft to develop a co-located power facility and data center complex in West Texas known as Project Kilby.
The project is expected to provide approximately 2.67 gigawatts of generating capacity through a phased buildout, making it one of the largest natural gas-powered data center developments in the United States. Most of the electricity will be generated using GE Vernova turbines, with additional capacity supplied by Caterpillar-owned Solar Turbines equipment.
Under the agreement, power generated at the facility will be delivered directly to a Microsoft-operated data center, helping meet surging electricity demand driven by AI and cloud computing workloads. By locating generation and computing infrastructure together, the project aims to reduce pressure on the regional grid while providing dedicated, dispatchable power.
The deal marks a significant step in Chevron’s strategy to capitalize on growing power demand from data centers while leveraging abundant natural gas production from the Permian Basin. The company said the project is expected to generate mid-teen returns and provide cash flows less exposed to oil and gas price volatility.
Chevron expects to reach a final investment decision by the end of 2026, subject to remaining approvals and conditions. First power delivery is targeted for 2028.
The announcement highlights a broader trend across the energy sector as technology companies seek reliable power sources for AI infrastructure. Utilities, independent power producers, and oil and gas companies have increasingly pursued partnerships with hyperscale data center operators amid forecasts that AI-driven electricity demand could significantly increase U.S. power consumption over the coming decade.
Chevron said the project could generate more than $10 billion in state and local tax revenue, support nearly 2,000 jobs, and contribute to economic growth in West Texas. The facility plans to use non-potable brackish groundwater rather than freshwater supplies and will incorporate emissions-control technologies, including selective catalytic reduction systems designed to lower nitrogen oxide emissions.
The partnership also expands Chevron’s presence in power generation, an area attracting increasing investment from traditional energy companies as AI and data center operators search for scalable energy solutions capable of supporting next-generation computing infrastructure.
By Charles Kennedy for Oilprice.com