Chevron signs 20-year deal to power Microsoft’s West Texas AI data center with natural gas

Global energy company Chevron has signed a partnership deal with Microsoft to build a dedicated natural gas power facility next to the tech giant’s data center campus in Pecos, Texas, penning a 20-year agreement that could generate up to 2.67 gigawatts of electricity for the data center’s AI workloads.

The “Kilby” energy project will pair one of the largest U.S. energy producers with one of the biggest buyers of data center capacity, continuing the trend of tech companies scrambling to lock down reliable electricity for AI infrastructure. Microsoft expects the Pecos campus to add 2 gigawatts of data center capacity over the next five to seven years, according to Reuters.

Chevron will develop the project alongside investment firm Engine No. 1 and GE Vernova, which will supply the majority of the gas turbines. Caterpillar’s Solar Turbines subsidiary will also provide additional generation capacity. Initial power generation is targeted for 2028, with output scaling to 2.67 gigawatts over time.

Microsoft bets on behind-the-meter power

Microsoft described the data center investment as a multi-billion-dollar commitment that would create more than 6,000 construction jobs and hundreds of permanent operational roles, according to Reuters.

The facility sits “behind the meter”, meaning Chevron will generate all of the electricity on-site instead of feeding it through the regional grid. Chevron New Energies senior commercial manager Deli Cole said the company can “provide reliable, scalable supply in step with accelerating demand” through dedicated power tailored to data center customers, according to Chevron’s newsroom post.

This structure ensures that the grid constraints that have become a major bottleneck for data center expansion across the United States does not affect the project. By putting generation on-site along with consumption, Chevron and Microsoft will skip the queue of interconnection requests and permitting delays that have stalled other projects.

Why natural gas and why Texas?

The Chevron establishment holds extensive natural gas reserves in the Permian Basin, which spans West Texas. The fuel offers a controllable, scalable power source that can increase output consistently to match shifting computing loads, a requirement for AI workloads that have random, unexpected spikes.

“AI isn’t a marginal increase in power demand,” Chevron New Energies President Jeff Gustavson said in the company’s announcement. “It’s fundamentally changing the scale and speed the energy system must deliver.”

The choice of natural gas over renewables or nuclear makes a lot of sense to Microsoft, as gas plants can be permitted and built faster than most alternatives. Chevron also already operates the upstream supply chain for natural gas reserves in the region. Gustavson mentioned that Chevron is “applying decades of project execution and energy system experience” to the data center sector.

Chevron’s expectations

Chevron said it is looking at reaching a final investment decision on Project Kilby before the end of 2026. The company has also identified additional sites where the co-located power model could work, though there are still no disclosed locations or timelines for this in particular.

For Microsoft, the deal adds to a growing portfolio of unconventional power arrangements made in the past year. Tech companies including Microsoft, Google, and Amazon have signed nuclear, geothermal, and natural gas agreements over the past 18 months as conventional grid capacity continues to fall short of the ballooning AI demand.

The Kilby project at full capacity would rank among the largest co-located natural gas power installations in the country, according to the newsroom post.