- Microsoft is in exclusive talks with Chevron and investment fund Engine No. 1 to secure electricity from a proposed $7 billion, 2,500-megawatt natural gas power plant near Pecos, Texas
- The plant would be one of the largest natural gas facilities in the U.S., generating electricity equivalent to more than two nuclear reactors — with potential to expand to 5,000 megawatts
- Access to reliable baseload power has emerged as the defining constraint in the AI infrastructure race, pushing data centers closer to fuel sources and away from population centers
- The deal is expected to be operational by 2027 but still requires tax abatements and an air quality permit from Texas environmental regulators
What Happened?
Microsoft has entered exclusive negotiations with Chevron and activist investment fund Engine No. 1 to secure long-term electricity from a proposed $7 billion natural gas power plant in West Texas. The plant, located near Pecos in the heart of the Permian Basin, would initially generate 2,500 megawatts of electricity — equivalent to more than two nuclear reactors — and could eventually expand to 5,000 megawatts. Chevron and Engine No. 1 have already secured an order for seven large natural gas turbines from GE Vernova, which are in such high demand that new customers face years-long waiting lists. The companies confirmed the exclusivity agreement but noted that no commercial terms have been finalized and no definitive agreement is yet in place.
Why It Matters?
Power availability has become the defining constraint in the AI infrastructure buildout. The new generation of AI data centers requires enormous, reliable electricity supplies, and tech giants are increasingly bypassing the traditional grid to go directly to energy producers. The West Texas Permian Basin is an ideal location: it produces so much natural gas as a byproduct of oil production that excess supply often overwhelms pipelines and must be burned off — making on-site power generation both economically attractive and environmentally pragmatic. For Microsoft, this deal would secure a dedicated, long-term power supply as it competes head-to-head with Amazon and Alphabet for AI dominance. Engine No. 1 — the fund that led a historic activist campaign against Exxon Mobil in 2021 — is now channeling that energy expertise into powering the AI era.
What’s Next?
The project is expected to be operational in 2027 and would ramp up to full capacity over three years. Construction is contingent on tax abatements from local West Texas authorities and an air quality permit from the Texas Commission on Environmental Quality, which declared Chevron’s application administratively complete in October. The project is filed under the entity “Energy Forge One LLC.” If the deal closes and the plant delivers, it could become a blueprint for how Big Tech secures dedicated energy infrastructure — at least nine large data center projects have already been proposed across North and West Texas over the past two years, signaling the region is becoming a critical hub for AI-era power needs.
Source: Bloomberg
