Microsoft and Chevron enter exclusivity deal on powering West Texas AI data center complex

Big Oil is joining the data center game, with Chevron and Microsoft entering an exclusivity agreement on talks to colocate gas-fired power plants with an AI campus in West Texas’s oil and gas epicenter. If finalized, the deal would represent the largest collaboration to date between a U.S. oil and gas giant and Big Tech.

Chevron is developing a power plant hub with 2.5 gigawatts of gas-fired power in West Texas—enough to power nearly 2 million homes—and has negotiated for months with potential hyperscaler clients. The multibillion-dollar project is scalable to 5 gigawatts and could start coming online as early as late 2027. Chevron already has a financial partnership with the Engine No. 1 investment firm and seven gas turbines ordered from GE Vernova.

“No commercial terms have been finalized, and there is no definitive agreement at this time,” Chevron, Microsoft, and Engine No. 1 said in a statement.

“The approach reflects an emerging shift in how power for AI is being developed, bringing energy supply closer to demand through colocated, behind-the-meter generation to deliver reliability while helping avoid added strain on regional electricity systems,” the statement said.

The top American Big Oil players, Chevron and Exxon Mobil, have historically stayed out of the power sector, except for Chevron powering some of its own oil and gas operations overseas. But the AI boom has triggered a pivot for Chevron.

In the Permian Basin, Chevron produces more than 1 million barrels of oil and gas (barrels of oil equivalent) every day. The natural gas, in particular, makes Chevron a potentially attractive partners for hyperscalers looking to quickly build data center campuses near fuel sources. Chevron has said it also is looking at colocated power projects in the Midwest and West.

Last week at the CERAWeek energy conference in Houston, Chevron chairman and CEO Mike Wirth said the company wants to help the U.S. in the AI race against China, including helping hyperscalers with their gas in power and permitting issues. The Big Oil and Big Tech sectors are partnering like never before, he said.

“What you’re seeing is these two worlds coming together, and power really is becoming the great limiting element for growth,” Wirth said. “What’s really concerning people is access to power, so you see a lot of creative deals being done. We’re working hard with some of the biggest companies in the world, trying to help them grow their business and be a part of that solution.”

Wirth said the tech sector has come to realize “you can’t take a big extension cord to the grid and plug in a data center.”

“It’s been a process of really helping to understand, how do we meet their needs, and how do they help commit to power purchase agreements that allow them to come into the system as rapidly as they want,” Wirth said.

While wind and solar and other sources of power will play big roles in the AI boom, Wirth called abundant American natural gas the “foundation” for powering the sector’s growth.

The U.S. leads the world in both natural gas production and exports. Mentioning the price spikes driven by the war in Iran, Wirth said: “The one commodity that hasn’t been touched is pipeline gas in the U.S., which is pretty much flat.”

This story was originally featured on Fortune.com