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Microsoft Corp. is in exclusive talks with Chevron Corp. and investment fund Engine No. 1 over a long-term deal that would underpin a giant power plant in West Texas, providing electricity to a large data center campus.
The proposed natural-gas fired power plant is projected to cost about $7 billion and initially generate 2,500 megawatts of electricity, making it one of the largest of its kind in the US, according to people familiar with the matter, who asked not to be identified because the talks are ongoing.
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“Chevron, Microsoft, and Engine No. 1 have entered into an exclusivity agreement related to a proposed power generation and electricity offtake arrangement,” the companies said in a statement to Bloomberg. “No commercial terms have been finalized, and there is no definitive agreement at this time.”
Chevron and Engine No. 1 had previously disclosed some details of their proposed power plant, but not the end user of the electricity. A deal with Microsoft would secure a long-term customer for the plant’s output and help finance its construction. The project, which could be up and running before 2030, still requires tax and environmental approvals as well as agreement of commercial terms.
Microsoft, a longtime backer of ChatGPT maker OpenAI, is doubling down on constructing data centers as it battles rivals Alphabet Inc. and Amazon.com Inc. for supremacy in artificial intelligence. The Redmond, Washington-based tech giant increased its AI capacity 80% last year and plans to double its data center footprint over the next two years.
Access to reliable baseload power is emerging as a key challenge — one the Chevron and Engine No. 1 partnership expects to address given its extensive natural gas production in West Texas and contracts for large turbines.
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The new generation of data centers is being built farther from major population centers and closer to sources of fuel due to their enormous power demands. Rising consumer electricity prices due to the demands of AI has become a hot-button political issue ahead of the midterm elections in November.
Chevron and Engine No. 1’s chosen site is near the city of Pecos, close to the Texas-New Mexico border in the heart of the Permian Basin, the largest oil-producing field in the US.
“The approach reflects an emerging shift in how power for AI is being developed, bringing energy supply closer to demand through co-located, behind-the-meter generation to deliver reliability while helping avoid added strain on regional electricity systems,” the companies said.
The Permian produces so much natural gas — a by-product of oil — that it often overwhelms pipelines. As a result, some gas has to be burned off because it can’t be transported to where it’s needed, making the region an ideal location for power plants. Landbridge Co. LLC, a large landowner in the area, said at least nine large data center projects have been proposed across North and West Texas over the past two years.
Key to Chevron’s push into power for AI is its partnership with Engine No. 1, the investor that led a successful activist campaign against archrival Exxon Mobil Corp. in 2021. The collaboration secured an order for seven large natural gas turbines from GE Vernova Inc., which are in such high demand that new customers face years-long waiting lists.
The power project in Pecos could be operational in 2027 and would take three years to ramp up to 2,500 megawatts, Chevron has said. That’s enough to power about 625,000 Texas homes, according to the state’s grid operator. If successful, the plant may eventually expand to as much as 5,000 megawatts.
Filed under the entity “Energy Forge One LLC,” Chevron has applied for several tax abatements with local authorities in West Texas. Its application for an air emissions permit with the Texas Commission on Environmental Quality was declared administratively complete in October.
(Updates with Microsoft AI buildout details in fifth paragraph, new statement in ninth.)
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