Chevron has entered a long-term agreement to supply electricity to Microsoft for a new data centre in West Texas, marking the oil major’s expansion into power generation amid rising demand driven by artificial intelligence infrastructure. The company is collaborating with Engine No. 1, a U.S. investment firm, to develop Project Kilby, a proposed 2.7-gigawatt facility located in the Permian Basin, a significant oil and gas producing region.
Chevron plans to finalize its decision on constructing a gas-fired power plant for Project Kilby later this year, though the project’s cost has not been disclosed. The data centre involved is considered one of the largest in the United States. Jeff Gustavson, Chevron’s president of new energies, highlighted the strategic advantage the project provides, noting it puts Chevron ahead of many peer companies developing similar data centre power solutions.
The move comes as Chevron competes with ExxonMobil, which is also pursuing off-grid power projects in the Permian Basin to utilize the region’s abundant natural gas resources. Last year, NextEra Energy, a Florida-based utility, partnered with ExxonMobil to create natural gas-fired plants powering customers, including tech giant Google.
The Permian Basin has seen rapid growth in oil production, which increases the supply of natural gas that is produced alongside oil. This has strained the region’s gas pipeline infrastructure, leading to instances where producers pay to have excess gas transported due to limited takeaway capacity. The Waha Hub, a key pricing point for Permian gas, has recently shown negative prices, reflecting this pipeline bottleneck.
Gustavson emphasized that Project Kilby’s ability to bring new demand to the basin could alleviate such issues by utilizing the surplus gas, potentially paving the way for further power generation projects. Although the initial phase of Project Kilby will rely on natural gas, Chevron is exploring the integration of low-carbon energy sources such as solar power in future developments within the project and elsewhere.
As AI technology demands expand data centre capacity across the United States, energy companies like Chevron are positioning themselves to provide specialized power solutions. The integration of traditional natural gas-fired plants with potential renewable energy components signals a strategic approach to meeting these new infrastructure needs while exploring opportunities to reduce carbon emissions over time.