Asia Needs $1 Trillion a Year to Avoid the Next Energy Shock
Oil and gas may be flowing through the Strait of Hormuz again, but the impacts of its months-long closure will be felt for years to come. For Asia, in particular, regulating markets and shoring up energy security to avoid the next energy shock will require trillions of dollars in the coming years as energy demand projection rates continue to rise sharply across the region. When traffic through…
The closure of the Strait of Hormuz has left Asia in a precarious position as it seeks to secure its energy future. After a brief halt in February due to military action, the vital waterway saw only a fifth of global oil and gas trade pass through. Asia, reliant on the Strait for 80% of its oil imports and 90% of its natural gas, has been scrambling to compensate for the loss.
Southeast Asia, particularly vulnerable due to its high energy import dependence, has experienced a national energy emergency in the Philippines and has turned to energy rationing, work-from-home mandates, and reduced work weeks to cope. The region's renewable energy boom, a silver lining of the crisis, has been hampered by insufficient grid and transmission infrastructure, as 70% of Asia's energy demand growth by 2040 is expected to come from the region.
A McKinsey report estimates that Asian nations will need to invest $1 trillion annually over the next 15 years to ensure energy security, as Asia's energy demand is projected to reach 370 million terajoules by 2040, a 15% increase from previous forecasts. This investment surge will be driven by data centers powering the artificial intelligence boom, industrial activities, and increased cooling needs due to climate change and economic development.
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