Chevron Signs Behind-the-Meter Power Pact with Microsoft for West Texas Data Center

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Written by Paul Wiseman for IIR News Intelligence (Sugar Land, Texas)

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Summary

A Chevron subsidiary announced a 20-year power-purchase agreement with Microsoft to supply electricity to a planned data center.

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Project Kilby to Power Microsoft Data Center

As part of the ongoing quest to reduce grid overload by powering massive data centers behind the meter, Energy Forge One, a wholly-owned subsidiary of Chevron USA, on June 22 announced a 20-year power purchase agreement (PPA) with Microsoft Corporation. Named Project Kilby, a planned power station near Pecos, Texas, would supply electricity for a to-be-built data center.

According to Industrial Info Resources data, the natural-gas fired power station is in its early stages and would generate 1.58 gigawatts (GW). A planned 987-megawatt (MW) unit addition would follow. The Industrial Info Resources Global Market Intelligence (GMI) Power Project and Plant databases offer detailed project reports and the plant profile. The project report on the Microsoft data center can be found here.

Jeff Gustavson, president of New Energies for Chevron, noted that the location's proximity to the Waha natural gas hub was part of its advantage. "We selected this site, obviously, to use the very abundant natural gas resource, very low cost, natural gas resource. We'll use a mix of large GE Vernova turbines and smaller Caterpillar turbines."

He added that Chevron is among the largest natural gas producers in the U.S., saying, "A lot of this problem, this energy shortage, will be solved with natural gas."

Permian producers have been paying to send natural gas through Waha in recent months due to the region's natural gas production growth outpacing that of takeaway capacity.

Gustavson discussed the project, along with the overall philosophy of Chevron's New Energies division, in a "fireside chat" at the J.P. Morgan Natural Resources Conference on June 23.

Three Years in Planning, FID Expected Later in 2026

"We started to think about this about three years ago and really leaned into that commitment two years ago, which gave us an advantage on this project," said Gustavson. The leaning-in involved ordering the GE Vernova turbines at that time to compensate for long manufacturing and delivery backlogs for the turbines.

Gustavson added that the final investment decision (FID) on the project was expected later this year.

Part of a Larger Plan

Pointing out that Chevron as a whole generates about $30 billion per year in cash flow, Gustavson said it would be a while before its nascent power generation business is more than a blip on the corporate earnings radar. "It takes a lot to become material in this size of a business."

The positives are that a 20-year PPA creates a predictable income and "...allows us to project finances, to minimize the capital commitment we're making in this."

Symbiotic Relationship in AI

Once completed, Gustavson said Chevron itself will use some of the Microsoft data center's computing capacity to further its internal artificial intelligence (AI) evaluation and adoption. "For a company of our size and the use cases we have across the company, this could be very, very, very, very big."

Out of all the possible uses for AI, he said Chevron was narrowing the field down from more than a thousand to about 50 "needle-moving opportunities," where AI could be deployed in a matter of months and improve business decisions.

"There are three focus areas for us," he said. "Individual productivity, transforming workflows, connected workflows across the companies...and then some business-specific opportunities."

How will AI be used internally? Gustavson listed several categories, including supply-chain optimization, drilling, production, and discovery, the latter from its extensive subsurface database. "Imagine putting all that data into a foundational model that can drive just differentiated decision-making across the basin."

On production, he referred to the company's thousands of operating wells, and "being able to optimize the output in all of those wells at the lowest possible cost."

Long-term Commitment

While there recently have been stories of Big Oil leaving alternative energy spaces, Gustavson stressed that consistency is the model for Chevron. Market changes are expected in any business, and he said the company deeply evaluates any sector before entering it, looking at the long-term opportunities, and stays the course through short-term fluctuations.

"Improving the probability of success really will be the secret of our success here. That's really the needle mover for us in exploration and AI," he said.

Key Takeaways

• Two giants in their respective fields--Chevron and Microsoft--have signed 20-year power offtake agreement for a planned data center in west Texas.
• Chevron's plan involves construction of a new natural gas-fired power plant. Station.
• Located near the Waha natural gas hub, where oversupply makes gas plentiful and cheap, Project Kilby would help Chevron get a better price for its gas while assuring Microsoft a good price and reliable power supply.

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About Industrial Info Resources
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, Industrial Info Resources is tracking over 250,000 current and future projects worth $30.2 Trillion (USD).