Microsoft in Talks With Chevron on $7B Texas Power Plant to Fuel AI Data Centers

Microsoft is in exclusive talks with Chevron and Engine No. 1 to anchor a multibillion-dollar natural gas power project in West Texas, racing to build AI infrastructure in increasingly reshaped energy markets.

The proposed facility — estimated to cost about $7 billion — would generate roughly 2,500 megawatts of electricity, making it one of the largest gas-fired plants in the US. The power would primarily supply a nearby data center campus tied to Microsoft, according to a report by Bloomberg on Wednesday.

In a joint statement, the companies confirmed they have entered into an exclusivity agreement to negotiate a power generation and offtake arrangement, though no binding terms have been finalized.

The talks highlight a broader shift in how hyperscalers are securing energy: pairing long-term demand for compute with dedicated, co-located power generation. The model — often described as “behind-the-meter” — allows large data centers to bypass congested grids and secure reliable baseload electricity, while limiting the impact on regional power systems.

The project would be located near Pecos in the Permian Basin, the largest oil-producing region in the US. The area’s abundance of natural gas — much of it stranded due to pipeline constraints — has made it an increasingly attractive destination for power-hungry data centers and industrial loads. Developers have proposed at least nine major data center projects across West and North Texas in recent years.

For Microsoft, the negotiations reflect the intensifying competition with rivals such as Alphabet and Amazon to scale AI infrastructure. The company expanded its AI capacity by roughly 80% last year and plans to double its data center footprint over the next two years, as demand for services tied to OpenAI and enterprise AI workloads continues to surge.

Access to reliable, always-on power has emerged as one of the biggest constraints in that buildout. The Chevron–Engine No. 1 partnership is positioning itself to address that bottleneck by combining upstream gas supply, turbine procurement, and project financing into a single integrated offering. The venture has already secured orders for large-scale gas turbines from GE Vernova, a critical step given multi-year backlogs for such equipment.

Chevron has indicated the plant could begin operations as early as 2027, with capacity ramping to 2,500 megawatts over several years and potential expansion to as much as 5,000 megawatts. The project remains subject to regulatory approvals, including environmental permits and local tax agreements.