A Landmark Energy-Tech Partnership
Chevron Corporation announced on Monday, June 22 that its subsidiary Energy Forge One LLC has signed a 20-year power purchase agreement with Microsoft Corp. to develop a co-located natural gas-fired power facility in West Texas that will provide dedicated electricity to a Microsoft-operated data center. The project, known as Kilby, is being developed in partnership with investment firm Engine No. 1 and is expected to deliver approximately 2.67 gigawatts of generating capacity through a phased modular expansion approach. This positions Kilby among the largest co-located power and data center developments in US history.
The facility will be located near Pecos, Texas, leveraging proximity to the Permian Basin's abundant natural gas resources. A majority of generation capacity will come from large GE Vernova gas turbines and associated electrical infrastructure, supplemented by equipment from Solar Turbines, a wholly owned subsidiary of Caterpillar. Crucially, the project will generate its own dedicated power, meaning it will not draw from the regional grid or involve a local utility — a design choice intended to mitigate the strain that massive data centers place on public infrastructure.
Strategic Rationale for Microsoft
Microsoft is doubling down on data center construction as it competes with Alphabet and Amazon in the rapidly expanding AI and cloud computing markets. The company plans to double its data center footprint over the next two years, driven by surging demand for AI workloads including its Azure OpenAI service and Copilot products. Microsoft President of Cloud Operations and Innovation Noelle Walsh stated, "The rapid growth we're experiencing in AI and cloud, driven by customer demand, requires energy infrastructure that can scale quickly and reliably. Our agreement with Chevron helps ensure we'll have dedicated, large-scale power to support the evolution and reliability of advanced compute."
For Chevron, the deal represents a strategic pivot toward the energy demands of the digital economy. Chevron New Energies President Jeff Gustavson called AI "reshaping the global economy" and emphasized that "abundant, affordable, reliable energy is essential to fueling that transformation." The project links Chevron's traditional natural gas expertise with emerging demand from the technology sector, creating a new revenue stream for the oil and gas giant as it navigates the global energy transition. The project is expected to reach final investment decision by the end of 2026, with initial power delivery targeted for 2028.
Broader Implications for AI Infrastructure in India
The Chevron-Microsoft deal highlights a global trend that has direct implications for India. The country is experiencing a data center boom driven by AI adoption, the 5G rollout and the Digital India initiative. According to a CBRE report, India's data center stock is expected to double by 2028, with major investments in Mumbai, Chennai, Hyderabad and Bengaluru. Reliance Industries has partnered with NVIDIA to build AI infrastructure in Jamnagar, while Adani Enterprises has announced plans for a 1 GW data center park in Hyderabad. Microsoft itself has committed to investing $3 billion in India over the next five years, including new data center regions in Hyderabad and Chennai.
However, the power supply challenge faced in Texas mirrors India's own grid constraints. India's data centers currently consume approximately 8-10 GW of power, expected to rise to 15-18 GW by 2030. The Ministry of Power has been working on policies to incentivize renewable energy-powered data centers, and several developers are exploring co-located solar and wind projects. The Chevron-Microsoft model of dedicated off-grid power generation could offer a template for Indian data center developers seeking to bypass the strained national grid while ensuring reliable 24/7 operations for critical AI workloads.
Sources
Sources: Bloomberg, Chevron Corporation official press release, World Oil, CNBC, Reuters, CBRE India Data Center Report 2026
