On June 22, 2026, Microsoft announced a new data center campus in the small West Texas town of Pecos, adding roughly 2 gigawatts of capacity in one stroke. The same day, Chevron confirmed in an official release that its wholly owned subsidiary Energy Forge One had signed a 20-year power purchase agreement (PPA) with Microsoft to feed the site. A large-scale experiment in building the power plant and the data hall together now sits at the edge of the Permian Basin.
A 2GW Campus: One of Microsoft’s Largest Single Additions
Pecos sits in Reeves County, West Texas, near the New Mexico border — not a classic data center market. Noelle Walsh, Microsoft’s president of Cloud Operations and Innovation, described the project on the company blog as “one of the largest single capacity additions in our history,” answering strong and sustained customer demand for AI and cloud services. The multibillion-dollar investment will span five to seven years, support more than 6,000 construction jobs at peak build-out, and create hundreds of permanent operational roles. Microsoft notes the demand comes not just from startups but from governments, healthcare providers, and educational institutions modernizing critical systems.
Project Kilby: Chevron’s Behind-the-Meter Gas Plant
The real protagonist of this deal is power. Project Kilby, developed by Chevron with hedge fund Engine No. 1, will build a roughly 2.67GW natural gas plant co-located with the Microsoft campus, delivering “behind-the-meter” electricity under a 20-year PPA — the plant bypasses the public grid and feeds the data halls directly. Generation will be led by large GE Vernova turbines, with additional capacity from Solar Turbines, a Caterpillar subsidiary, built out in phased, modular steps. First power is expected in 2028, and Chevron aims to reach a final investment decision (FID) by the end of 2026, targeting mid-teen returns.
The supply line was laid more than a year in advance. Chevron and Engine No. 1 announced their plan to develop up to 4GW of data center power capacity in January 2025, picked West Texas for the first plant in November 2025, and signed an exclusivity agreement with Microsoft in April 2026 that framed the contract announced this week.
Why Behind-the-Meter Power Suddenly Makes Sense
The answer is blunt: grid queues are too slow. Large-load interconnection can take years, while the AI capacity race is measured in months. Jeff Gustavson, Chevron’s president of New Energies, argues Chevron can deliver power “with certainty, speed and at a competitive cost” by drawing on Permian natural gas. Microsoft’s framing is more direct: the energy infrastructure is funded by Microsoft — “our growth strengthens, rather than strains, the energy resources the community relies on.”
The trend is converging on West Texas. In August 2025, Pacific Energy unveiled plans for a 5GW off-grid power project in neighboring Pecos County, and in March 2026 Microsoft itself leased around 700MW from Crusoe’s campus in Abilene. When interconnection becomes the bottleneck, piping your own gas and generating your own power becomes a rational hyperscaler move.
Water and Community Commitments
In arid West Texas, water is touchier than electricity. Chevron says the plant will use non-potable, brackish groundwater rather than freshwater, and is advancing ways to reuse produced water from oil and gas operations. The design includes Selective Catalytic Reduction systems to cut NOx emissions, alongside noise and light controls. Chevron projects more than $10 billion in state and local tax revenue and nearly 2,000 supported jobs. Microsoft, for its part, is wrapping the project in its “Community First” framing, pledging to show up as a lasting partner rather than a passer-by.
What It Means for Cloud Capacity
Three observations. First, power — not chips — is now the binding constraint on cloud expansion; by paying for the plant itself, Microsoft is effectively internalizing supply certainty. Second, behind-the-meter gas has moved from fringe tactic to mainstream instrument, with long-term consequences for load shapes and pricing in grids like ERCOT. Third, a single 2GW campus whose first power arrives only in 2028 signals that commitments in this capacity race now stretch beyond five years — cloud scarcity is not easing anytime soon.
Sources
- Powering the next wave of AI: Expanding capacity with our new datacenter in Pecos — Microsoft Official Blog
- Chevron signs 20-year power agreement with Microsoft for West Texas data center — Chevron Newsroom
- Microsoft plans 2GW data center campus in Pecos, Texas — DCD
- Chevron signs 20-year natural gas deal with Microsoft for AI data center — Quartz
AI-assisted summary compiled from the sources above, reviewed by a human before publishing.