Chevron to Power Massive Microsoft AI Data Center in Texas With Natural Gas Under 20-Year Deal
June 22, 2026
Chevron to Power Massive Microsoft AI Data Center in Texas With Natural Gas Under 20-Year Deal
Chevron announced on Monday a landmark 20-year agreement to supply natural gas to a massive Microsoft data center in West Texas, marking a significant shift in how the largest technology companies are approaching energy procurement for artificial intelligence infrastructure. The deal underscores the growing tension between Big Tech's ambitious climate goals and the relentless, round-the-clock power demands of AI workloads.
The data center, codenamed Project Kilby and located in Reeves County, is expected to consume nearly 2.7 gigawatts of electricity—enough to power approximately 2 million homes. Most of this power will be generated by large gas turbines supplied by Chevron's partner GE Vernova, with additional turbines provided by Caterpillar. Crucially, the power is dedicated exclusively to the data center and will not be connected to the broader electric grid, a design that Chevron says avoids competition with local residential and commercial consumers.
"There's really no competition with local electricity consumers," Jeff Gustavson, president of Chevron New Energies, told CNBC. "In fact, over time, as we have excess power, we plan to push that into the grid to help stabilize it." Construction on Project Kilby has not yet begun; Chevron expects to make a final investment decision later this year, with the data center slated to start receiving power in 2028.
The partnership comes as Microsoft undertakes an unprecedented buildout of data center capacity to support its artificial intelligence applications. The company plans $190 billion in capital expenditures this year alone, a 61% increase over 2025 spending. Microsoft's willingness to embrace natural gas through a direct partnership with an oil major signals a pragmatic pivot from its historical reliance on renewable energy to offset carbon emissions. While Microsoft has invested heavily in solar and wind power, it has increasingly turned to alternative sources that can provide reliable, 24/7 power—including a 2024 investment to restart the Three Mile Island nuclear plant in Pennsylvania.
"The rapid growth of AI requires energy infrastructure that can scale quickly and reliably," Noelle Walsh, Microsoft's president of cloud operations and innovation, said in a statement Monday. For its part, Chevron is well-positioned to deliver natural gas from the Permian Basin—spanning West Texas and southeastern New Mexico—to data centers at a competitive cost, Gustavson added. The deal highlights a broader industry trend: as AI drives an explosion in data center electricity consumption, technology companies are increasingly turning to fossil fuels and nuclear power to bridge the gap between renewable energy's intermittency and the constant power demands of advanced computing.
Source: cnbc
