Asia Is Building the World’s Next $15 Trillion Energy Market
- Asia will drive 70% of global energy demand growth through 2040, requiring $1 trillion in annual investment as industrial expansion and data centers boost consumption.
- Coal will remain dominant despite booming renewables, while falling solar and battery costs accelerate clean energy deployment across the region.
- Biofuels could replace up to $100 billion in annual fuel imports by 2040, with India and Indonesia expanding blending mandates to reduce oil dependence.
The global energy transition is increasingly becoming an Asian story, and Asia is unlikely to follow the path envisioned in Washington or Brussels. The region’s governments will have enormous influence over the future of coal, oil, natural gas, renewables and energy storage. What happens next in Asia will determine whether the transition actually reduces global fossil fuel consumption or simply adds vast amounts of renewable power to an energy system that keeps getting bigger.
Asia requires $1 trillion annually in energy investments over the next 15 years to strengthen energy security, accelerate the transition to sustainable energy sources and meet growing regional demand, McKinsey has reported. According to the global management consulting firm, Asia will account for about 70% of global net energy demand growth through 2040, with the continent’s energy demand now expected to reach 370 million terajoules, good for a 15% increase from the forecast a year ago thanks to the proliferation of data centers, industrial expansion and cooling needs.
Coal is expected to remain the most dominant fuel in Asia’s energy mix longer than previously anticipated.
While coal use is expected to slowly decline in China due to rapid growth of renewable energy generation, growing electricity and industrial needs in India and Southeast Asia are projected to keep overall regional demand steady.
Coal-fired power continues to play a vital role in system adequacy and grid reliability as Southeast Asia experiences some of the world's fastest-growing electricity demand. Coal represents about 47% of Asia's total primary energy mix, while oil accounts for 25% and natural gas about 12%. Coal plays an even larger role in the power sector, supplying over 50% of Asia's electricity mix, and an even higher 67% in South Asia, led by India. Asia’s thermal coal prices currently remain elevated due to reduced production in China as well as government-imposed supply quotas/disruptions in Indonesia, alongside gas-to-coal switching in Japan and South Korea.
In contrast, natural gas demand in Asia is projected to decelerate over the next 5 to 10 years as countries prioritize cheaper domestic coal and rapid renewable energy deployments for power generation. However, a long-term rebound in gas consumption is expected, primarily driven by the industrial sector as it transitions away from more carbon-intensive fuels like oil and coal for manufacturing and processing.
McKinsey reports that roughly $300 billion in annual investments will be required to fund wind and solar energy infrastructure, primarily concentrated across India and Southeast Asia as they accelerate their transition to renewable energy. Utility-scale solar PV is now the lowest-cost power source in the vast majority of Asian markets, driven by steep declines in capital and equipment costs.
While cheap domestic coal continues to delay the economic tipping point for renewables in specific countries like India, renewable energy costs across the broader Asia-Pacific region have dropped roughly 13% below conventional coal, with projections that they will be a third cheaper by 2030. Solar officially overtook gas as Asia's third-largest power source in the 12 months leading up to April 2026, while China generated less than 50% of its electricity from coal for the first time ever in the first half of 2026.
Similarly, onshore wind has reached cost parity or fallen below conventional fossil-fuel alternatives in key regional markets, supported by manufacturing scale and supply chain localization led by China. Meanwhile, battery energy storage systems (BESS) have recorded a 93% price decline over the past 15 years, making solar-plus-storage and wind-plus-storage increasingly viable alternatives to peaking gas plants.
Finally, McKinsey has projected that biofuels have the potential to replace $90 billion to $100 billion in fuel imports in Asia by 2040, which would drastically lower the region's long-term energy dependence on imported oil. Recently, we reported that global biofuels output is projected to surge by nearly 70% by 2030 compared to 2025 levels as major producing countries raise their fuel-blending mandates in response to the energy crisis triggered by the Middle East conflict.
Having previously established an E20 (20% ethanol) petrol blend, India accelerated technical specifications in May 2026 to transition toward higher standards like E30. Government guidelines advise fuel retailers to prepare dispensing infrastructure so consumers can eventually select blends matching their specific vehicle engine engineering (as legacy vehicles built for E10 or pure petrol face compatibility and mileage challenges with higher blends).
Meanwhile, as the world's largest palm oil producer, Indonesia has been even more aggressive with its biofuel mandates, rolling out B50, a 50% palm oil biodiesel blend, as it pushes to eliminate diesel imports. The program is expected to require 16.7 million to 18 million kiloliters of biodiesel annually, consuming roughly 15.2 million to 16.3 million metric tons of crude palm oil. The government estimates B50 could cut Indonesia's fuel import bill by about $9.4 billion in 2026, while reducing carbon dioxide emissions by roughly 44 million metric tons per year, or about 42% compared with conventional petroleum diesel.
By Alex Kimani for Oilprice.com
Asia Needs $1 Trillion a Year to Avoid the Next Energy Shock
- McKinsey estimates Asia may need to invest $1 trillion a year in energy over the next 15 years to avoid a repeat of the Hormuz shock.
- Asia is expected to drive 70 percent of global energy demand growth by 2040, led by data centers, industry and cooling.
- Solar is booming in Southeast Asia, but weak grids have stalled or canceled projects, and coal demand is forecast to hold steady for a decade.
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 Iranian-controlled Strait of Hormuz stopped overnight back in February in response to a military offensive by the United States and Israel, one-fifth of the world’s oil and gas trade flowed through the vital artery. While the Strait’s closure impacted energy markets worldwide, no region was harder hit than Asia. Of the roughly 20 million barrels of oil and oil products that passed through the waterway each day before the war broke out, about 80 percent of that oil and 90 percent of natural gas were destined for Asian markets.
Asian nations have been left scrambling to fill that supply gap by any means possible. Southeast Asia, in particular, was caught out in an extremely vulnerable position due to the region’s relatively high dependence on energy imports and low capacity to absorb market shocks. The fallout was swift and significant: the Philippines declared a national energy emergency in March, and governments across the region turned to energy rationing, work-from-home mandates, and even four-day work weeks to manage the strain.
One result of this shock has been a solar boom in Southeast Asia, where many nations have experienced a renewable energy renaissance practically overnight. However, the development of critical supportive grid and transmission infrastructure has not kept pace, threatening the feasibility of this approach to energy security. Already, a large number of planned renewable projects have been stalled and canceled across the region due to insufficient and unreliable grid capacity.
According to a recent report from Climate Home News, “inadequate grid capacity and maintenance is already proving a major factor in the region’s stuttering rollout of new clean energy projects.” The report also highlights “issues ranging from unclear power purchase agreement (PPA) structures, a failure of power policies to keep up with investor needs, permitting and licensing approval delays, grid connection constraints, limits to private sector involvement in electricity markets, and policy and tariff uncertainty.”
Fixing these issues is going to require a gargantuan amount of money. A new McKinsey report published Thursday estimates that Asian nations may need to invest $1 trillion annually in energy over the next 15 years to ensure energy security across the region, as its forecast for Asia’s energy demand ticks up to a whopping 370 million terajoules by 2040. This represents a 15 percent increase from last year’s forecasts.
The energy demand growth coming out of the world’s most populous continent is hard to overstate – 70 percent of the world’s energy demand growth by 2040 is supposed to come from Asia alone. A large amount of this project demand is due to come from the data centers popping up to power the artificial intelligence boom. Another significant source of demand will be from industrial activities, as well as increased cooling needs as the climate grows warmer and the region continues its breakneck economic development.
While renewable expansion will continue to develop rapidly across Asia, with about $300 billion to be invested in solar and wind each year through 2040 according to McKinsey’s projections, projections for coal consumption have also been expanded and extended. “Coal is expected to remain a part of Asia's energy mix for longer than previously anticipated, with regional demand seen staying broadly flat over the next decade as declining consumption in China is offset by growth in India and Southeast Asia,” reports Reuters.
By Haley Zaremba for Oilprice.com
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