Chevron signs 20-year Microsoft power deal for Texas AI data centre

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Chevron, Microsoft Texas AI deal

Highlights

Chevron signed a 20-year agreement to supply electricity to Microsoft for a West Texas AI data centre, advancing its Project Kilby power initiative.
Project Kilby, developed with Engine No. 1, will deliver 2.7 gigawatts of capacity in the Permian Basin, with a final investment decision expected later this year.
Chevron is targeting off-grid power demand from tech giants as growing Permian oil output strains gas pipelines and pushes Waha Hub prices below zero.

Permian project advances with long-term customer

As first reported by the Financial Times, Chevron has signed a 20-year agreement to sell electricity to Microsoft for a data centre in West Texas, strengthening the company's move into power generation tied to the AI infrastructure build-out.

Chevron is developing Project Kilby with Engine No. 1, a U.S. investment firm, and says the project will deliver 2.7 gigawatts of capacity in the Permian Basin. The company is expected to make a final decision later this year on whether to build a gas-fired power plant for the project, although it does not disclose the development cost.

Jeff Gustavson, Chevron's president of new energies, says the agreement gives the company a competitive edge. He says few announced U.S. data centre projects have reached the milestone achieved by Project Kilby.

AI demand boosts off-grid power strategy

Chevron is competing with ExxonMobil to expand into off-grid power plants, seeking to use abundant natural gas output in the Permian, the center of U.S. oil and gas production. NextEra Energy said last year that it was partnering with ExxonMobil to develop natural gas-fired power plants for customers including Google.

Technology companies such as Microsoft, Amazon and Alphabet are spending billions of dollars to expand data centre capacity, creating a new source of electricity demand for energy producers. At the same time, rising oil production in the Permian is straining gas pipeline takeaway capacity, leaving some producers paying to move gas out of the region and pushing Waha Hub prices into negative territory in recent months.

Gustavson says one of the project's key features is bringing demand directly to the basin to reduce that pressure. He adds that Project Kilby does not initially include renewable generation, but Chevron could add solar power later and may use similar low-carbon technologies in future developments in the region and elsewhere in the country.

Chevron’s 20-year power agreement with Microsoft for a West Texas data center campus was previously covered in our publication, highlighting how energy producers are securing long-term demand tied to the AI-led data center build-out. That update also noted that, despite the supportive newsflow, Chevron’s shares were showing weak technical momentum and elevated downside risk in the near term.

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