• Chevron will supply dedicated power to a Microsoft-operated data center in West Texas under a 20-year agreement.
• Project Kilby is expected to deliver about 2.67GW of capacity, making it one of the largest co-located gas power and data center projects in the U.S.
• The project could generate more than $10 billion in state and local tax revenue, support almost 2,000 jobs, and deliver first power in 2028.

Chevron Moves Deeper Into AI Power Infrastructure

West Texas is becoming a test case for one of the biggest questions facing the AI economy: who can deliver power fast enough to keep it growing?

Chevron Corporation has signed a 20-year power purchase agreement with Microsoft to develop a major co-located power facility for a Microsoft-operated data center in West Texas. The agreement sits under Energy Forge One LLC, a wholly owned Chevron subsidiary.

Chevron and Engine No. 1 have been collaborating on the development, known as Project Kilby. The project is expected to deliver about 2.67 gigawatts of capacity through a phased, modular buildout. That structure allows the site to expand over time as power demand rises.

Most of the generation will come from large GE Vernova turbines and related electrical infrastructure. Additional capacity will be supplied by Solar Turbines, a wholly owned subsidiary of Caterpillar.

The project places Chevron squarely inside the energy race behind artificial intelligence. Data centers need large, reliable power loads. Grid connection queues, transmission limits, and public concern over electricity costs have all become material risks for technology companies.

“AI is reshaping the global economy, and abundant, affordable, reliable energy is essential to fueling that transformation,” said Jeff Gustavson, Chevron president of New Energies. “Chevron is uniquely positioned to deliver power to customers with certainty, speed and at a competitive cost, leveraging Permian natural gas and our proven execution capabilities. This project links Chevron’s traditional strengths to emerging demand, creating differentiated value for our shareholders and the communities where we operate.”

Dedicated Power, Reduced Grid Pressure

Kilby is designed to generate electricity directly alongside the data center. That co-location model aims to provide Microsoft with dedicated, dispatchable power while reducing pressure on the regional grid.

For technology companies, the strategy offers a route around one of the sector’s most difficult bottlenecks. AI and cloud growth require power systems that can scale at industrial speed. But utilities and grid operators face rising demand from electrification, manufacturing, cooling, and digital infrastructure.

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“The rapid growth we’re experiencing in AI and cloud, driven by customer demand, requires energy infrastructure that can scale quickly and reliably,” said Noelle Walsh, Microsoft president of Cloud Operations + Innovation. “Our agreement with Chevron helps ensure we’ll have dedicated, large-scale power to support the evolution and reliability of advanced compute. Through this partnership, we’re delighted to grow with and become a deeper part of the West Texas community.”

The agreement also shows how major oil and gas companies are repositioning their assets. Chevron is linking Permian natural gas supply, project execution, and power generation to the rise of AI infrastructure. For investors, the company is pitching Kilby as a source of diversified cash flow that is less exposed to oil and gas price cycles.

Chevron said the project is targeting mid-teen returns. A final investment decision is expected by the end of 2026, subject to remaining conditions. First power delivery is expected in 2028.

Governance and Environmental Scrutiny Will Follow

The scale of Kilby will attract close attention from policymakers, local communities, and sustainability teams. The project could generate more than $10 billion in state and local tax revenue and support almost 2,000 jobs. It could also drive broader economic activity across West Texas.

Yet large gas-fired power projects linked to AI demand will face questions about emissions, water use, and long-term climate alignment. Those questions are likely to sharpen as hyperscalers defend their clean energy targets while expanding compute capacity.

Chevron said Kilby plans to use non-potable, brackish groundwater for power plant operations instead of freshwater. The company is also working on reuse options for produced water from oil and gas operations.

The plant design will include advanced air emissions control technologies. These include Selective Catalytic Reduction systems designed to reduce NOx emissions. Chevron also said the project will include measures to reduce noise and light impacts on surrounding communities.

For C-suite leaders, Kilby reflects a wider shift in infrastructure strategy. Data center growth is no longer only a real estate or cloud capacity issue. It is now a power procurement, permitting, community relations, and climate governance challenge.

The deal also adds weight to a broader U.S. trend. AI expansion is forcing new partnerships between technology companies, energy majors, turbine suppliers, and local governments. West Texas, with its gas resources and industrial base, is now positioned as a major node in that buildout.

Globally, the project will be watched for what it says about the next phase of digital infrastructure. The AI economy is moving fast. Its power systems, emissions profile, and local impacts are becoming board-level issues.

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