Big Oil Becomes Big Power in AI's Rush

Chevron will supply 2.67 gigawatts of natural-gas-fired electricity to a Microsoft data center in West Texas under a 20-year agreement announced Monday — enough to power roughly 2 million homes. The deal, known as Project Kilby, represents something more than a power purchase. It marks the moment Big Oil formally became Big Power, pivoting from extracting hydrocarbons to burning them on-site for the world's most energy-hungry industry: artificial intelligence.

First power delivery is anticipated in 2028, Bloomberg reported. Chevron expects the project to generate diversified cash flow independent of oil and gas price cycles, a hedge against commodity volatility that has plagued the sector for decades. The timing is no accident. The cost to build a combined-cycle gas turbine power plant has spiked 66% in the last two years, according to BloombergNEF, driven by a stampede of tech companies chasing the same scarce resource: turbines. By the end of this year, prices for gas turbines are expected to be up 195% over 2019 prices, TechCrunch reported. Waitlists are stretching into the early 2030s.

Can the Grid Keep Up With AI's Appetite?

It cannot, which is why Chevron is in this business at all. Rapid growth in AI data center power demand is driving a resurgence in fossil fuel investment, with natural gas planned capacity increasing from 11.1% in 2024 to 18.1% in 2026 — and planned non-renewable additions surging 71% from 2025 to 2026, according to the American Action Forum. Data centers could start to rival LNG as a source of incremental natural gas demand growth by the start of the next decade, Natural Gas Intel reported.

The numbers are staggering. By 2026, generation in the United States is expected to hit 4,400 TWh and has the potential to rise to 5,200 TWh by 2030 — representing a nearly 24% increase from 2023.

This type of load growth is unprecedented in recent times and has not occurred since the 1980s, according to S&P Global Market Intelligence. Grid interconnection queues have become a bottleneck, stretching years into the future. A behind-the-meter gas plant can be deployed in as little as 18 months, a critical advantage when AI projects generate billions in annual revenue and every month offline is money lost.

The Chevron-Microsoft deal is not an outlier. Williams Companies has announced $4.7 billion in data center power investments, while Exxon Mobil has a pipeline of over 2.7 GW in data center power projects. Oil companies are no longer just fuel suppliers. They are becoming vertically integrated power producers, owning the gas, the pipeline, and the turbine.

What Happens When the World's Biggest Oil Exporter Buys Russian Fuel?

While Chevron builds power plants in Texas, Saudi Arabia is buying Russian fuel oil at record volumes — a paradox that reveals how the Hormuz crisis has rewired global energy flows. Russia's seaborne exports of fuel oil and vacuum gasoil to Saudi Arabia jumped 18% in March from February to one million tonnes, Reuters reported, citing LSEG data. All Saudi imports of Russian refined fuels continued to unload at its Western ports, with no shipments transiting the Strait of Hormuz.

The logic is straightforward. Saudi Arabia has emerged as a key export destination, stepping up purchases of discounted Russian fuel oil to supply its power sector, allowing the kingdom to preserve valuable crude that would otherwise be burned for electricity. Summer air-conditioning demand is soaring. Domestic oil and gas wells remain shut-in or producing below capacity after the Hormuz blockade forced production cuts earlier this year. Cheap Russian fuel oil solves both problems: it keeps the lights on and frees up Saudi crude for export at higher prices.

The arrangement benefits Moscow, too. Russia's fossil fuel export revenues increased by 2% month-on-month to EUR 726 million per day in May despite export volumes remaining roughly the same as in April, according to the Centre for Research on Energy and Clean Air. Europe's embargo on Russian oil products has pushed Moscow to find new buyers. The Middle East, desperate for fuel amid the Hormuz crisis, has obliged.

Will Hormuz Stay Open This Time?

At least 20 tankers transited the Strait of Hormuz on Thursday, the highest level of traffic since June 2, CNBC reported, citing Kpler data. There was a recovery in oil tanker traffic through the strait immediately after the U.S. and Iran signed a 14-point memorandum of understanding last week, but the latest data shows the reopening has already hit a snag. An analysis published by Windward found that a total of 12 ships transited the Strait of Hormuz on Sunday, down from more than 21 the previous day.

Traffic is still below prewar levels when more than 100 ships, including dozens of tankers, transited Hormuz daily.

Under the MOU, both sides agreed to reopen the Strait of Hormuz toll-free for at least 60 days and to end all hostilities. The 60-day clock is ticking. If the ceasefire holds, stranded tankers will flood out of the Persian Gulf. If it collapses, oil prices — which traded at $71.50/bbl on Monday, according to market data — could spike again.

The uncertainty has kept shipping companies cautious. The global shipping trade group Bimco warned Monday that Hormuz remains high risk and the threat of mines is a major concern.

Many shippers are waiting for the threat assessment to be downgraded from the highest alert levels before crossing Hormuz, with the Joint Maritime Information Center downgrading the threat from critical to severe on June 7. Severe still means "elevated risk of attack."

Can Venezuela Fill the Gap?

Not quickly, and not at scale. Venezuela's oil sector is staging a fragile but consequential recovery in 2026, with production stabilizing at around 1.1 million barrels per day after years of collapse, sanctions and underinvestment, according to the African Energy Chamber. Realistic short-term changes look like a potential increase from 1 to 1.3 million bpd as idled capacity and shut-in wells are carefully restarted, Stillwater Associates estimated.

That is a far cry from the 3.5 million bpd Venezuela produced in the 1990s. Wood Mackenzie's March 2026 infrastructure assessment documented that 67% of Venezuela's oil processing facilities operate below 50% nameplate capacity due to equipment failures, lack of spare parts, and skilled labor emigration.

Venezuela will need to generate more than $100 billion over the next decade to restore its oil production capacity, with various estimates agreeing on this figure, UPI reported.

Chevron's joint ventures with PDVSA now account for roughly a quarter of national output, producing around 250,000 bpd, with scope to increase further using existing infrastructure. But the Trump administration's push to revive Venezuelan oil faces a hard reality: Recent policy shifts supporting increased U.S. investment in Venezuelan oil assets have not fundamentally altered the economic calculus facing international operators, with more attractive investment opportunities remaining available across the region, according to Rystad Energy.

What Changed This Week

Chevron crossed a threshold. The company is no longer just an oil producer hedging into renewables; it is building dedicated fossil-fuel power plants for private customers, a business model that did not exist five years ago. The Hormuz reopening, fragile as it is, has begun — but traffic remains a fraction of prewar levels and the 60-day toll-free window is already ticking down. Venezuela's oil recovery, once hyped as a game-changer, is proving slow and capital-intensive, leaving global markets still tight. And natural gas, once seen as a "bridge fuel" to renewables, is now the fuel of choice for the AI boom, with turbine prices soaring and waitlists stretching years.

What to Watch

Chevron's final investment decision on Project Kilby is expected by the end of 2026. Watch whether other oil majors follow with similar deals — Exxon and Williams have already signaled interest. The U.S.-Iran memorandum of understanding expires in 60 days, around mid-August; tanker traffic data in late July will reveal whether the reopening is durable or another false start. Venezuela's production data for July, due in early August, will show whether the country can sustain output above 1.1 million bpd or whether infrastructure constraints are binding. And turbine delivery schedules from GE Vernova and Caterpillar will determine how quickly the data center power boom can scale — or whether it hits a hard ceiling.