Permian Gas Has Been Worth Less Than Nothing for 118 Days This Year
Chevron's subsidiary Energy Forge One has a 20-year deal with Microsoft to build a gas-fired power plant near a data center campus outside Pecos, Texas, that could reach about 2.67 gigawatts; a final investment decision is expected by year-end and power is planned for 2028. The project highlights a broader Permian Basin problem: record gas output and limited pipeline capacity have driven negative prices for producers much of this year, prompting buyers to place generation at the wellhead.
Why It Matters
The deal links three long-running West Texas energy challenges—surging gas volumes, constrained midstream capacity and available transmission—and shows how large onsite electricity buyers like data centers are beginning to pay to consume gas where it is produced rather than wait for new pipelines or grid connections.
Key Facts
- Project developer: Energy Forge One (Chevron subsidiary)
- Customer and contract length: Microsoft, 20-year agreement signed in June
- Planned capacity: Approximately 2.67 gigawatts
- Timeline: Final investment decision by end of year; power flowing in 2028
- Permian gas production forecast: EIA expects 29.2 Bcf/d average this year (a regional record)
Chevron’s Energy Forge One has agreed to build a gas-fired power plant beside a Microsoft data center campus near Pecos, Texas, in a deal intended to supply onsite electricity directly from locally produced gas. The plant is slated to scale up to about 2.67 GW under a 20-year contract; the developer plans a final investment decision by the end of the year and expects the facility to begin delivering power in 2028.
The project responds to an oversupply problem in the Permian Basin. The EIA projects Permian gas output will average 29.2 billion cubic feet per day this year, a regional high, while the Waha pricing hub traded at negative prices on 118 of the first 131 trading days—meaning producers sometimes pay others to take gas to avoid shutting oil wells that remain economically viable. Midstream firms are expanding pipeline capacity, including Enterprise Products Partners’ Bahia NGL project with ExxonMobil taking a 40% stake, but industry participants do not expect the imbalance to end quickly.
Behind-the-meter generation at data center sites is one emerging response. Rather than send gas into congested gathering systems or wait for new pipelines, some operators are placing on-site gas plants that buy fuel at the wellhead and produce electricity that stays with the customer, bypassing the public grid. Analysts count roughly 38 GW of announced behind-the-meter gas capacity in Texas, and individual buildouts such as GW Ranch target multi-gigawatt on-site fleets; proponents argue this approach converts stranded fuel into immediate demand, though compliance firms caution that projects have not consistently shown they displace flared volumes. Flaring intensity in the Permian has fallen nearly 10% from 2023 to 2024, in part because pipelines such as Matterhorn Express have provided more outlets.
Transmission history and ongoing projects shape where new generation and data centers land. A roughly $7 billion Competitive Renewable Energy Zones (CREZ) program put about 18,000 MW of high-voltage lines into service two decades ago, enabling wind power flows and making the I-20 corridor attractive to large electricity customers today. Meanwhile, the Permian Reliability Project is in siting processes and is expected to open new transmission for far West Texas solar; developers have already shifted some planned projects from wind to solar when turbines conflicted with airspace, underscoring how transmission and siting constraints influence technology choices and project location.