Securing Asia’s energy and natural resources future

As Wood Mackenzie prepares for our annual APAC Energy and Natural Resources Summit in Singapore on 15 June, Asia is driving global economic growth. This means not only resurgent demand for energy and natural resources across the region, but also a pressing need to secure these commodities.

Even as its carbon emissions continue to rise, energy security imperatives mean Asia continues to invest in domestic fossil fuels and is scrambling to lock-in imports of coal, oil and gas to drive growth.

But this is not business as usual. Most now want to go much faster to decarbonise. This risks a two-speed energy transition across Asia as countries continue to rely on fossil fuels while simultaneously moving faster towards low-carbon technologies.

Energy security at the top of the agenda

Despite being home to half of the world’s top ten carbon emitters, the push for energy security in the wake of the war in Ukraine has forced many Asian economies back to coal. Even at high prices, coal demand is resilient, with China and India ramping up production of cheap domestic resources.

This has been underpinned by slow progress on impactful carbon costs and decarbonisation policies. Few Asian countries have yet shown the ambition to mirror the EU’s Carbon Border Adjustment Mechanism (CBAM) or the US Inflation Reduction Act (IRA), though credit must be given to China for the pace of its renewables growth. China installed around four times the level of wind and solar capacity compared to the US last year.

Fossil fuels still keeping the lights on

Around 55% of Asia’s power supply is still generated from coal. Despite the high price environment, coal today remains one of Asia’s cheapest new-build power generation options. China permitted over 100 GW of new plants last year alone. Southeast Asian coal demand does not peak until 2035, with its share of renewables still small by 2050. Even Japan has tapped the decarbonisation breaks, causing consternation at last month’s G7 meeting in Hiroshima with proposals for cleaner coal-fired power plants.

With the region’s electricity demand growth expected to be double the rate of the rest of the world this decade, reports of coal’s death have been greatly exaggerated.

Asian oil and gas demand looks robust. Driven by growth in conventional passenger vehicle sales and demand for plastics, we expect Asia’s oil demand to grow 10% this decade. Cleaner burning natural gas demand will rise by a quarter as it helps tackle coal use in the power sector.

With oil and natural gas import dependency rising, investment in domestic supply is responding. PetroChina was the world’s largest upstream investor in 2022, ahead even of Saudi Aramco. And while China’s two largest oil and gas producers will trim investment in 2023, Asian National Oil Companies will still invest over US$70 billion this year in oil and gas production.

Putting the spotlight back on Asia’s energy transition

Despite Asia’s uptick in coal demand, it would be a mistake to believe the region is stalling on its energy transition goals.

Renewable power will overtake electricity generated from fossil fuels in 2034 and will rise further to 59% by 2050. Asia’s coal generation halves by this time. The next decade will attract around US$3 trillion of low-carbon power investment as Asia’s mix gradually moves towards renewables.

Given its phenomenal investment in solar, wind and nuclear, not only does China’s goal of ‘phasing down’ coal demand from 2026 still look achievable, the country is also exporting much of the hardware the rest of the world needs to decarbonise.

It’s a similar story with oil. As the world’s second-largest oil market, China’s demand peaks in 2027 driven by rapid electric vehicle penetration and fuel efficiency gains. Total Asian oil demand peaks in 2033. Once again, this is being underpinned by China’s critical metals supply chain dominance and battery manufacturing muscle.

Across Asia, net zero pledges signal strong political will. Supporting these are myriads of initiatives – including government-led funding, emerging carbon capture and storage (CCS) regulations and support for low-carbon hydrogen. India’s current G20 presidency has green growth as its central theme.

Transforming the way Asia powers its growth

Transforming Asia’s energy systems is a monumental challenge. The IRA and CBAM could lead to a major reshoring of clean energy manufacturing away from Asia. Supply chain risks and cost inflation are negatively impacting the competitiveness of renewables, and Asia’s carbon costs remain too modest.

But this is a pessimistic outlook. The overall pace of energy demand is moderating. The investment needed to grow renewables will come. Both CCS and low-carbon hydrogen have a future, and other new technologies will emerge. But Asia’s coal addiction must be addressed quickly. There is little time to waste.

Upcoming: to hear from our experts and industry leaders on how Asia can secure its energy and natural resources future and deliver on its decarbonisation ambitions, please join us for our annual APAC Energy and Natural Resources Summit in Singapore on 15 June – register here.