Oil and Gas Giants Are Cashing In on the AI Boom, Selling Fossil Fuel Power to Data Centers

2024 has been an extraordinary year for the global oil and gas industry. Over the past two weeks, many of the world’s largest energy giants have reported multibillion-dollar quarterly profits, fueled largely by skyrocketing crude prices driven by ongoing conflict in the Middle East. But there’s another unexpected growth driver buoying the sector: the artificial intelligence boom, which has opened up an entirely new customer base for fossil fuel companies’ existing assets: natural gas, pipeline networks, and power generation facilities, all in high demand from data center operators.

Two major U.S. energy firms, Williams and Chevron, are already framing this new demand surge as a transformative win for their bottom lines when presenting to investors. “Data centers are emerging as a major growth engine for both power and natural gas demand across the United States,” notes Ashish Sethia, global head of commodities and energy at research firm BloombergNEF. BNEF released a new report last week finding that rising natural gas demand, partially driven by accelerating data center expansion, will require U.S. domestic natural gas production to increase by 36% by the mid-2030s.

This booming new partnership between Big Tech and fossil fuels carries major climate consequences, even for projects that are never connected to the national public grid. Permit applications for just five of the seven gas-fired power plants tied to data centers that the two firms highlighted in their second-quarter earnings show they could collectively release up to 21 million tons of greenhouse gas pollution each year. That figure is roughly equal to the entire annual greenhouse gas output of Guatemala, though actual emissions are expected to fall far below the maximum levels allowed under construction permits. Leaders at both Williams and Chevron confirmed during recent earnings calls that they plan to continue expanding their data center-focused infrastructure for decades to come.

“What makes this alliance between tech and oil so alarming is that it throws a lifeline to an industry we urgently need to phase out,” says Lukas Shankar-Ross, deputy director at environmental nonprofit Friends of the Earth.

While Williams is not as well known to the general public as Chevron or ExxonMobil, it ranks among the largest oil and gas infrastructure companies in the U.S. — and it has already built a highly profitable data center services division. Last year, the firm announced it would construct a dedicated power plant and supporting pipeline network in Ohio built exclusively to power a private data center. Developing this kind of disconnected, “islanded” infrastructure — often called “behind-the-meter” power — has grown increasingly popular with tech firms, which want to avoid years-long wait times for public grid connections and steer clear of public backlash over pushing up residential electricity costs.

Williams is currently building six behind-the-meter gas plants for data centers across the U.S., including four projects that power Meta data centers in Ohio. (Meta declined to provide comment for this reporting.) In mid-July, Williams announced more than $5 billion in total investment for its data center initiatives, including backing from global private equity giant KKR.

Permit applications for four of Williams’ planned power plants show they could emit up to 9.6 million tons of greenhouse gases annually — equal to the total emissions from more than 22 typical-sized natural gas power plants, per U.S. Environmental Protection Agency data. In an email to WIRED, Williams spokesperson Alex Schott explained that the facilities “are designed to operate well below permitted limits” and meet all state air quality regulations. Schott added that the company’s internal modeling puts actual emissions from the plants “potentially” two-thirds lower than the maximum levels listed in their permits.

The company is also constructing a 9-mile natural gas pipeline through an Ohio suburban area. Williams leaders say the pipeline will not only power the company’s Meta-owned plants in the region, but also supply natural gas to the fast-growing cluster of data centers expanding across that part of the state. During a May earnings call, Williams president Chad Zamarin noted the company “overbuilt the capacity” of the pipeline serving one Meta-connected power plant specifically to “be an energy artery along which other projects could be developed.”

The largest behind-the-meter gas plant Williams is building for Meta in Ohio clocks in at just under 700 megawatts. But Williams is far from the only company betting big on powering data centers with gas, and its project is dwarfed by Chevron’s 2.67-gigawatt facility being built for a Microsoft data center in Texas.

The oil giant reported its highest quarterly profits in six years last Friday, and highlighted its data center partnership with Microsoft across all of its investor materials. In June, Chevron confirmed it had signed a 20-year power purchase agreement with the tech giant — a contract that locks in a set electricity price for two decades, compared to the 10 to 12.5 year agreements Williams has with Meta. Chevron says the Texas project is the only “multi-gigawatt” data center power project with such a long-term fixed contract currently in place.

As WIRED previously reported in April, the power plant quietly applied for a multimillion-dollar tax break from a local school district, which was finalized by the state of Texas late last month. Per its permit, the Chevron-Microsoft plant could release more than 11.5 million tons of carbon dioxide equivalent emissions each year.

Chevron spokesperson Paula Beasley says the facility is engineered to meet all federal and state environmental regulations. “Kilby's approach focuses on natural gas generation for reliable capacity, with the possibility of adding renewable generation in the future,” she said. Microsoft did not respond to a request for comment.

Jeff Gustavson, president of Chevron’s New Energies division, told investors during Friday’s earnings call that the Texas project “provides a repeatable model” for future growth, and that Chevron is already in talks with other potential data center clients. “The grid cannot keep up with the demand from hyperscalers and others, and we see that persisting for years,” Gustavson said.

While Williams and Chevron are the earliest movers in this space, Sethia expects “multiple players” will profit from building out new and expanded pipeline infrastructure for data centers. “One of the clear patterns we’re seeing is that a lot of new data center announcements are starting to cluster around areas that already have existing natural gas pipelines,” Sethia says.

Building islanded power plants at the massive scale and fast pace the AI industry requires is a relatively new phenomenon. As rising utility costs have fueled a national backlash against data center expansion across the U.S., the current administration has actively encouraged tech companies to develop independent power solutions to avoid straining the public grid, including building their own on-site generation.

Whether these massive private plants will remain dedicated exclusively to data centers, or will eventually be connected to the public grid, is “a massive question for the future of power prices in the country,” Sethia says. While Chevron’s investor materials indicate the company expects to connect the Microsoft power plant to the Texas grid sometime after 2030, the state’s grid already faces crippling delays for new interconnection requests. Beasley says an interconnection application for the plant has already been submitted. “Future interconnection could enable export of surplus power and provide additional system redundancy, if achieved,” she says.

Schott, the Williams spokesperson, says the company is researching technologies to boost the efficiency of its gas plants. “Future interconnection opportunities could be evaluated once the long-term load profile and system needs are better understood,” she says.

Large natural gas plants are multidecade investments that often outlast shifting political tides and short-term policy changes. Building out more fossil fuel infrastructure to power AI data centers today could delay the global transition to renewable energy, even if political priorities shift back toward decarbonization in coming years, Shankar-Ross points out. “If, 20 years from now, there’s a public grid dominated by renewables, and a private grid for data centers dominated by fossil gas, Microsoft and other tech companies will bear some of the responsibility here,” he says.