PECOS: Chevron Corp signed a 20-year deal with Microsoft Corp to provide natural-gas fired power for a proposed West Texas data centre (DC), which could be one of the biggest in the United States.
The proposed plant, Project Kilby, is expected to start producing power by 2028 and will ramp up to 2.67GW over time, Houston-based Chevron said in a statement on Monday.
That’s enough to power more than 530,000 Texas homes.
The oil giant, which is collaborating on the development with Engine No 1, plans to make a final investment decision later this year.
Bloomberg News previously reported the companies were in exclusive talks over a long-term power deal.
Microsoft is aggressively building DCs as it competes with Alphabet Inc and Amazon.com Inc to expand in artificial intelligence (AI).
The longtime backer of ChatGPT maker OpenAI plans to double its DC footprint over the next two years.
The partnership with Chevron, one of the country’s biggest gas producers, is expected to supply the large-quantities of reliable power needed for AI’s energy-hungry models.
Overall, the United States is expected to double its DC capacity to 77GW by 2030, according to BloombergNEF.
That is expected to put severe pressure on the power grid and is already raising costs for consumers, prompting political backlash around the United States.
Microsoft has a target to match 100% of its hourly electricity use with renewable energy purchases by 2030, but is now considering delaying or abandoning that goal, Bloomberg reported in May.
It comes as Big Tech is racing to secure enough energy to meet the demands of AI.
The power plant will feed cheap gas from the Permian Basin, America’s biggest oil field, to several large GE Vernova Inc turbines that will power a DC campus that Microsoft plans to build on that site near the city of Pecos, Texas.
It will generate its own power, meaning it will not draw from the grid or involve a local utility, Chevron president of new energies Jeff Gustavson said in an interview.
“Consumers are concerned about and are already feeling the effect of power-demand growth,” he said.
“We specifically designed this, in this part of the country, to avoid any of that.”
The Permian Basin is one of the world’s biggest oil fields but also produces natural gas as a byproduct – so much so that it’s often too much for pipelines to handle and has to be burned off as waste.
This results in cheap local prices, which Chevron pointed out are a competitive advantage.
“This is the most abundant gas basin in the country, maybe the world,” Gustavson said.
The power plant “brings demand to the basin to use that gas and not waste it”.
Chevron and Engine No 1 have committed orders for seven GE Vernova natural gas turbines, which typically have a years-long backlog.
Engine No 1, through its new energy venture Joulent LLC, has the option of buying a 50% of the project and funding the same proportion of capital spending.
“Leadership in the AI era will be determined by who can deliver energy and compute the fastest, most reliably and at the lowest cost,” Engine No 1 founder Chris James said in a statement.
Chevron and Engine No 1 has not yet revealed how much it will cost.
TD Securities analyst Jason Gabelman pegged the outlay at about US$9bil, assuming most is project financed and earns the developers an internal rate of return of about 15%.
That would require Microsoft to pay approximately US$150 per megawatt hour, he said in a note.
Chevron’s power venture will provide “a cash flow stream that is uncorrelated to the underlying commodity, providing valuable diversification”, Arun Jayaram, an analyst at JPMorgan Chase & Co, wrote in a note.
Texas has 33 GW of planned DC power projects, the largest in the country ahead of Virginia, according to BloombergNEF.
However, most of them are early-stage proposals and Virginia has more in construction.
“In our peer group a lot of others are talking about doing things like this,” Chevron’s Gustavson said.
“We’re now actually doing it. We think that differentiates us.” — Bloomberg
