Off-Grid AI Energy
Chevron and Microsoft Ink 20-Year Deal for 2.67-GW Texas Gas Power to Fuel AI
Key Points
Project Kilby will be built in Reeves County, near Pecos, placing the gas-fired generation directly in the Permian Basin rather than relying on power imported from the Texas grid.
Microsoft’s broader spending context: the agreement comes as Microsoft plans roughly $190 billion in capital expenditures this year, up 61% from 2025—underscoring how quickly its AI buildout is expanding demand for reliable power.
Chevron’s New Energies president Jeff Gustavson said the project was “specifically designed…to avoid any of that” as consumers feel the effects of surging power demand—an explicit rationale for the off-grid, onsite generation approach.
Gustavson also framed the Permian location as a solution to flaring: “Operators flare off the excess as waste,” and the plant “brings demand to the basin to use that gas and not waste it.”
Chevron and partners have already ordered seven GE Vernova turbines for Project Kilby, with the report noting that such equipment typically carries multi-year backlogs—suggesting the supply chain is being secured ahead of construction.
Chevron and Microsoft have signed a 20-year deal to build a massive natural gas power plant in West Texas, delivering up to 2.67 gigawatts of electricity directly to a new AI data center campus. The project, called Project Kilby, will be located near Pecos in Reeves County and is expected to deliver first power in 2028, according to Reuters.
The plant will run entirely off the Texas grid, powering what could be one of the largest AI data center buildouts in the country. Chevron expects to make a final investment decision by the end of 2026. At full capacity, the facility would generate enough power for roughly 2 million homes, BNN Bloomberg reported.
Permian Gas Turned from Waste into AI Fuel
Project Kilby is planted squarely in the Permian Basin for a reason. In the region, drillers often burn off excess natural gas as waste — a practice called flaring — because pipelines are full. Chevron's New Energies president Jeff Gustavson said the plant "brings demand to the basin to use that gas and not waste it."
The site spans over 2,000 acres in Reeves County, according to Morningstar. Rather than pulling power from ERCOT — Texas's main electricity grid — the facility will generate power onsite. Gustavson said the project was "specifically designed…to avoid any of that" strain on the public grid that surging data center demand can cause.
GE Vernova Turbines Already Ordered Ahead of Construction
Chevron and its partners have already ordered seven GE Vernova 7HA-class gas turbines for the project. That matters because such equipment typically carries multi-year backlogs. Locking in the hardware now signals the supply chain is being secured well before construction starts, Reuters reported.
Solar Turbines, a unit of Caterpillar, will supply additional modular equipment to allow the plant to scale up in phases through the 2030s. The plant will use brackish groundwater — not drinking water — and install Selective Catalytic Reduction systems to cut nitrogen oxide emissions, according to Sharecast.
Microsoft's $190 Billion Bet on Reliable AI Power
The deal reflects how fast Microsoft is spending to build AI infrastructure. The company is on track for roughly $190 billion in capital expenditures this year — a 61% jump from 2025, according to TradingKey. Microsoft president of Cloud Operations Noelle Walsh said the AI buildout "requires energy infrastructure that can scale quickly and reliably."
The Project Kilby agreement marks a notable turn for Microsoft, which had previously leaned on renewables and nuclear power for its AI energy strategy. The company recently signed a nuclear deal with Constellation Energy, but the 2028 timeline for Project Kilby shows that natural gas is filling the gap that wind and solar cannot close fast enough.
$10 Billion in Taxes, but Critics Flag Subsidy Deals
Chevron estimates the project will create 2,000 permanent jobs and generate more than $10 billion in state and local tax revenue over the project's life. The total construction cost is estimated at around $7 billion, according to sources familiar with the deal cited by BNN Bloomberg.
Despite that scale, the project has drawn scrutiny. Chevron's subsidiary, Energy Forge One LLC, has sought significant school district tax abatements in Texas. Critics argue that two of the world's wealthiest companies do not need public subsidies for a private power plant that won't feed the public grid. Environmental groups have also raised concerns that a 20-year gas commitment undercuts Microsoft's pledge to be carbon-negative by 2030, as reported by Sharecast.
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