Asia set to invest $5.5 trillion by 2030 to bolster energy security: Morgan Stanley

Asian governments and companies are likely to invest $5.5 trillion over the next five years to strengthen energy security and reduce dependence on imports, as geopolitical tensions have exposed the fragility of cross-border energy supplies, Morgan Stanley said in a report.

For investors, the surge in spending could unlock up to $9 trillion in opportunities across the energy value chain, including power generation, grids, energy storage, fuel refining, fertilizers, shipbuilding, and industrial equipment, according to the report, a copy of which was made available to Platts, part of S&P Global Energy, on June 29.

"A large portion of spending will likely focus on fossil-fuel infrastructure to ease near-term bottlenecks and improve energy-system reliability," the report said, adding that energy companies would likely finance most of the new buildout, with some support from government.

"The ongoing energy shock could trigger more than $1 trillion of annual spending on fuel refining, storage, gas pipelines, power grids, coal, and gas power generation through 2030. Renewable energy and nuclear energy supply chains are also likely to attract increased investment," the report said.

It said Asia was facing a major structural supply-demand imbalance. That imbalance was increasingly affecting economic activity across the region. Energy insecurity had contributed to plastics shortages, reduced steel and nickel production, air travel disruptions, and tiered power pricing for data centers.

"More recently, oil-supply issues related to the conflict in Iran have prompted governments to take rationing measures such as four-day work weeks, school closures and limits on air-conditioning use. These geopolitical tensions and policy responses underscore the fragility of cross-border energy supplies and reinforce the need for greater energy security in Asia," the report said.

With new investments, the region could reduce its energy imports from 36% of total consumption to 29% by 2030, the report said.

"Critical inflection point"

"We are at a critical inflection point where energy, AI and security converge into a once-in-a-generation investment cycle," the report quoted Mayank Maheshwari, who leads Morgan Stanley's energy and utilities coverage in India and Southeast Asia, as saying. "This is likely to be the largest and longest energy investment cycle in history, with implications across every asset class, sector and geography."

While Asia is unlikely to become fully energy independent, this investment cycle can reduce reliance on concentrated supply sources and diversify both import partners and fuel types," Maheshwari said.

Capital expenditure announced in the Asian energy sector through 2030 already totals $4.3 trillion. An additional $1.2 trillion would be required by the end of the decade to reduce the region's energy imports from 36% of total consumption to 29%, according to Morgan Stanley Research estimates. The projected spending would translate into annual capex growth of 11% over the next five years, up from an average rate of 2% over the past decade.

"While investments in Asia's energy infrastructure have been stagnant over the past 10 years, consumption has risen 50% in the period," the report said.

According to Morgan Stanley's research analysis, a significant share of investments through 2030 would be directed toward fossil-fuel infrastructure -- including coal, diesel, and natural gas -- to address near-term bottlenecks and improve energy-system reliability.

"Coal is again expanding its importance in the region's energy mix, supported by Asia's large reserve base, which accounts for approximately three-fifths of global coal reserves. Greater reliance on domestic coal resources could help moderate growth in liquefied natural gas imports," it said.

"At the same time, investment in renewable energy may temporarily plateau as transmission and distribution networks will need to be upgraded to support greater renewable penetration," it said.

Japan, China, and India

The urgency of addressing energy bottlenecks is evident in governments' actions. For example, Japan is investing in shipbuilding and fusion energy; China is focusing on improving energy resource security and has announced a five-year investment plan of $3 trillion to $3.8 trillion; and India is looking to diversify its energy imports and use technologies such as coal gasification and biofuels to reduce import dependence.

The report said Morgan Stanley research sees opportunities across several themes, including powering AI, coal demand, biofuels, fuel refining, shipbuilding, heavy-equipment manufacturing, organic chemicals, fertilizers, and energy-storage deployment.

"Energy security has implications that extend far beyond the utility sector," Maheshwari said. "Securing reliable energy supplies for Asia creates opportunities across industries ranging from copper and commodity trading to fuel refining, fertilizers and shipbuilding."

Strong balance sheets of energy companies can fund 75% of these new investments. Governments could chip in more aggressively to cover the remaining 25% of capital needs through policies that kick-start and accelerate investments and keep energy prices affordable, it said.

According to Premasish Das, executive director for oil analytics at S&P Global Energy CERA, the conflict involving Iran served as a critical wake-up call for Asia. Countries throughout the region are rapidly intensifying their infrastructure investments. This capital deployment is strategically channeled into expanding storage tankages to build robust strategic reserves, upgrading and constructing domestic refining capacities to reduce reliance on imported fuels, and accelerating upstream exploration and production.