Microsoft Turns to Chevron Natural Gas to Power Texas AI Data Center

Tech giant Microsoft (NASDAQ:MSFT) has signed a 20 year agreement with Chevron (NYSE:CVX) to fuel a 2.7 gigawatt artificial intelligence (AI) data center using natural gas.

Dubbed Project Kilby, the as-yet-unbuilt data facility will be located in Reeves County, Texas. At full operational capacity, it will draw enough electricity to power roughly 2 million homes.

To guarantee an uninterrupted power supply, Chevron and investment firm Engine No. 1 will construct a dedicated power plant directly on the site to bypass the regional Texas electricity grid.

This “behind-the-meter” setup will use large-scale gas turbines provided by GE Vernova (NYSE:GEV) and Caterpillar (NYSE:CAT). The turbines will be fed directly by Chevron’s natural gas reserves in the nearby Permian Basin.

As the AI boom continues, it is becoming increasingly apparent that this technology cannot operate on intermittent energy schedules. Running AI models generates immense heat, and the process requires continuous electricity not just for processors, but also for industrial-scale cooling infrastructure.

The company’s capital expenditures are projected to hit US$190 billion this year, a 61 percent jump from 2025, driven largely by the physical infrastructure required to sustain AI software.

According to data cited by the companies, corporate adoption of AI tools surged from 20 percent in 2017 to a whopping 88 percent by 2025, triggering a power deficit across the US.

“AI requires energy infrastructure that can scale quickly and reliably,” said Noelle Walsh, Microsoft’s president of cloud operations and innovation, as the company addressed the power procurement shift.

For its part, Chevron states in Monday’s (June 22) release that it plans to replicate this exact power model at multiple sites across the country where it holds domestic energy resources.

The Texas contract follows a similar move by Microsoft earlier this year, when the tech giant committed heavy capital to purchase power from the decommissioned Three Mile Island nuclear plant in Pennsylvania.

Both investments mirror a sector-wide scramble to secure off-grid, 24/7 power sources.

Chevron expects to make a final investment decision on the Project Kilby power plant later this year. If approved and constructed on schedule, the facility will begin delivering electricity to Microsoft’s servers in 2028.

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Securities Disclosure: I, Giann Liguid, hold no direct investment interest in any company mentioned in this article.