alt Hacker NewsThe current natural gas price in West Texas (the WaHa hub, north of Coyanosa, TX) is negative. And has been for a while. The price peaked (dipped?) to -$9/MCF a couple months ago. That means gas producers had to pay $9 per MCF for it to be taken away. Oil in the Permian comes with gas, a lot of it, so to produce oil, you need to get rid of gas. Wells I'm familiar with have 4000-5000 cubic feet of gas per barrel of oil. Recall in oilfield M = thousand, so that's 4-5 MCF per bbl of oil.
There is no free gas pipeline capacity to get gas out of West Texas. Any time new pipelines are built, they are filled within months.
This makes a ton of sense for oil producers (which are also gas producers) who can sell their gas for less of a loss (potentially a profit!) and also for MSFT who can lock in long term contracts for minimal cost. I'd guess these contracts are for $1-2/MCF which is win/win for the oil companies in the area and MSFT.
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Profits still ain't easy.
Cheap gas is great, but 2.67GW of new build natural gas in this market will cost $6-8 billion in fixed costs. You need wholesale pricing of ~$50-60/MWh ... OVER 25 years! ... to recover just the fixed costs.
For West Texas, prices averaged mid-$30s over the last year.
Microsoft has all of the leverage here, and Chevron wants a big announcement in an area where they don't have a lot of experience.
Even corporate ESG policies bend the knee to cheap Texas energy!
This might make sense for oil producers to get rid of their natural gas, which is nearly a waste material, but I'm struggling to understand how it makes sense for Microsoft. Despite the cheap natural gas, and an abundance of investors and builders with natural gas expertise, in the competitive electricity generation market everybody is deploying solar and batteries in west Texas because it's still more profitable than gas generation.
Further, there's a gas turbine shortage so Microsoft choosing to put their (presumably limited) allocation of gas turbines in West Texas, where they have good alternatives, seems a bit mysterious. Why not save that massive amount of turbines for the northeast DCs, where renewables work far poorer yet gas is more reliable?
The reasons that seem most convincing to me:
1. Political environment is hostile to renewables and Microsoft doesn't want to paint a target on their back by choosing solar plus batteries, the choice others are making in West Texas.
2. Grid connection drastically changes economics, but pipelines for gas are cheap or something, so the massive cost and delay from grid interconnection simply isn't worth it
3. There are particular political favors going on with Chevron, e.g. Chevron wants gas in the area and is willing to increase MS's turbine allocation if they do it in west Texas, or Chevron is helping get around pesky local political approvals for data centers, or something like that.
The cost of gas does not seem like a justification for this, though.