Oil major Chevron to supply power to Microsoft, putting troublesome natural gas to use

[Financial News]  

Chevron Corporation has signed a 20-year deal to supply power to Microsoft (MS)'s data center in Texas. The electricity will come from a gas-fired power plant that Chevron will build. The move shows that an oil major has joined the AI boom, which has been described as a power-hungry giant.
It also offers a way for oil companies to turn natural gas, a byproduct of oil production that is costly to process, into a source of profit.
Natural gas is prized in countries without oil, but for U.S. oil companies it has long been a troublesome byproduct that costs money to handle. With this deal, it is expected to become a new cash cow.
The Financial Times (FT) reported on the 22nd local time that Chevron is moving ahead with the Kilby Project with U.S. investment firm Engine No. 1. The plan calls for building a 2.7-gigawatt power plant in the Permian Basin, the company's largest oil field.
The final decision on whether to build Chevron's gas-fired power plant project will be made later this year.
Jeff Gustavson, president of Chevron's new energy division, told FT that the project is a "competitive advantage." He added that no other oil company has reached the milestone Chevron has achieved among all data center projects announced in the United States.
Chevron is competing with rival oil major ExxonMobil to expand into the power generation business. In that race, Chevron has the edge because it has secured natural gas fields in the Permian Basin.
Last year, Exxon teamed up with Florida-based utility NextEra Energy to begin supplying power to AI companies such as Google through gas-fired power plants.
This shows that oil companies are choosing gas-fired power generation both to tap into the AI-driven power boom and to make use of natural gas, a byproduct of oil production.
They are already benefiting from high oil prices driven by the war in Iran, and this is also an ideal way to put the natural gas produced as a byproduct of oil extraction to use.
In U.S. shale oil fields, processing vast amounts of natural gas has been expensive. Even as other countries struggle with energy shortages, the Waha Hub price index for Permian natural gas has recently turned negative for months. The shortage of pipelines to transport the gas is the reason.
Gas-fired power plants offer a smart solution to this problem.
By building power plants and burning the natural gas as fuel, companies can earn even greater profits.
Gustavson said the Kilby Project is only the starting point and predicted that more gas-fired power plants will follow.

dympna@fnnews.com Song Kyung-jae Reporter