Microsoft is engaged in exclusive negotiations with Chevron and investment fund Engine No. 1 regarding a long-term agreement to support a massive energy complex in West Texas, which would power a large data center campus.
According to informed sources, the proposed natural gas power plant in West Texas is projected to cost approximately $7 billion. Its initial phase would generate 2,500 megawatts, positioning it among the largest projects of its kind in the United States. The sources requested anonymity as the discussions are still ongoing.
In a joint statement issued to Bloomberg, the three companies stated: "Chevron, Microsoft, and Engine No. 1 have signed an exclusivity agreement for the proposed power generation and purchase arrangement. No commercial terms have been finalized, and no definitive agreements exist at this time."
Chevron and Engine No. 1 had previously disclosed some details about the planned power station but had not identified the ultimate consumer of the electricity. A finalized agreement with Microsoft would secure a long-term customer for the plant's power output and assist in financing its construction. The project could potentially become operational as early as 2030, pending necessary tax and environmental approvals, as well as agreement on commercial terms.
As a longtime supporter of OpenAI, the developer of ChatGPT, Microsoft is accelerating its data center construction to compete for leadership in artificial intelligence against rivals such as Alphabet Inc. (Google's parent company) and Amazon. Securing reliable baseload power is becoming a critical challenge. The partnership between Chevron and Engine No. 1 aims to address this by leveraging Chevron's extensive natural gas production in West Texas and contracts for large-scale gas turbines.
Due to their enormous power demands, next-generation data centers are increasingly being sited away from major population centers and closer to fuel sources. The location selected by Chevron and Engine No. 1 is near the city of Pecos, close to the Texas-New Mexico border, in the heart of the Permian Basin, the largest oil-producing region in the United States.
The Permian Basin yields vast quantities of natural gas as a byproduct of oil extraction, often overwhelming pipeline capacity. Consequently, some gas that cannot be transported to demand centers is flared on-site, making the region an ideal location for power plant construction. Landbridge Co. LLC, a major landowner in the area, indicated that at least nine large-scale data center projects have been proposed in northern and western Texas over the past two years.
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