Microsoft Signed a 20-Year Gas Deal to Power West Texas AI

Microsoft didn't wait for Texas to build the grid — it hired Chevron to build the power plant. On June 22, the two companies signed a 20-year agreement for Project Kilby: a 2.67-gigawatt natural gas facility co-located with a Microsoft AI data center near Pecos in Reeves County, West Texas. The plant won't connect to ERCOT. It exists to feed one customer.

The deal: Chevron subsidiary Energy Forge One will develop the plant with activist investor Engine No. 1. Microsoft buys the output for two decades. Most generation comes from GE Vernova turbines; Caterpillar's Solar Turbines supplies the rest.

• Capacity: 2.67 GW of generation for roughly 2 GW of data center compute over five to seven years
• Timeline: Final investment decision expected by end of 2026; first power targeted for 2028
• Returns: Chevron is targeting mid-teen returns on cash flow it calls "independent of oil and gas price cycles"
• Jobs: Microsoft projects 6,000 construction jobs and hundreds of permanent roles; Chevron cites $10 billion in state and local tax revenue

Noelle Walsh, Microsoft's president of cloud operations and innovation, said the buildout "requires energy infrastructure that can scale quickly and reliably." Jeff Gustavson, Chevron president of New Energies, told CNBC there's "really no competition with local electricity consumers."

Why off-grid: Interconnection queues are the new bottleneck. FERC ordered six regional grid operators on June 18 to rewrite large-load rules within 60 days — but even expedited reform can't deliver 2.67 GW on a hyperscaler's schedule.

• CNBC reports Project Kilby's power is dedicated to the data center and not connected to the electric grid
• Data Center Knowledge notes Microsoft signed a firm 20-year PPA while many announced AI campuses still lack financing, equipment, or power commitments
• Independent strategist Ihab Osman told the outlet: "The unit of AI development is no longer the data center; it is the energy-compute complex."

Microsoft plans $190 billion in capital expenditures this year — up 61% from 2025, per CNBC. Speed beat shared infrastructure.

The climate bill: This is a pivot for a company that pledged carbon negativity by 2030 and backed Three Mile Island's nuclear restart in 2024.

• TechCrunch reports the Environmental Integrity Project estimates Project Kilby could release more than 13 million tons of carbon dioxide, 3,200 tons of criteria air pollutants, and 278,000 pounds of hazardous air pollutants at full build-out
• Those figures are modeling, not measurements — final emissions depend on operating hours, turbine efficiency, and pollution controls Chevron says will include Selective Catalytic Reduction for NOx
• Chevron plans brackish groundwater for cooling instead of freshwater

TechCrunch noted the deal marks "a significant shift for a company that has been vocal about its sustainability efforts."

Who wins: Chevron converts Permian Basin gas into a 20-year contracted annuity. Microsoft gets dispatchable power without ratepayer politics — local opposition to grid-connected data centers has killed dozens of U.S. projects in 2026 over electricity cost fears.

• Engine No. 1 co-developed the plant through its energy arm Joulent
• GE Vernova and Caterpillar both disclosed surging data-center turbine orders in early 2026 earnings
• xAI uses the same Solar Turbines equipment at its Memphis campus — now the subject of a local air pollution lawsuit, per TechCrunch

What to watch:

• Chevron's final investment decision by year-end — the PPA is signed, but turbines aren't running yet
• Texas air permits for the Kilby Power Plant in Reeves County
• Whether Amazon, Google, and Meta copy the behind-the-meter playbook
• Microsoft's 2030 carbon-negative pledge against two decades of locked-in gas combustion

Convina's view: Project Kilby is the AI economy admitting what its sustainability slides won't: reliability beats green credentials when the IPO clock and the interconnection queue don't align. Microsoft solved the power problem the same way it solved the chip shortage — write a check big enough to skip the line. Chevron solved a different one — turning Permian gas into mid-teen returns that don't move with oil prices. The losers are anyone still pretending the AI buildout runs on grid timelines and renewable optics alone. Deliverable megawatts are the product now. Chevron just priced them for twenty years.