Rising energy demand pushes SEA toward costly fuel choices

The International Energy Agency’s recent summit laid bare the growing global divide over energy security and the contested role of fossil fuels in the path to net-zero emissions. For Southeast Asia, the debate is no longer distant. It is unfolding within the region’s borders as governments confront the challenge of meeting rapidly increasing energy demand while navigating the risks of fossil fuel dependence.

In the last 15 years, Southeast Asia’s energy consumption has surged by 60 percent, and it is expected to grow by another two-thirds by 2040. Economic expansion, a population forecasted to increase by 20 percent, and growing urban centers are fueling this demand.

The issue is not about whether consumers can afford energy, but whether governments can sustain the rising costs of securing supply. Oil demand alone is projected to grow from 4.7 million barrels per day to about 6.6 million barrels by 2040. Once known for rich oil reserves, countries such as Malaysia, Indonesia, and Vietnam are now net importers. Crude oil imports are predicted to more than double in the region by 2040.

Reliance on external suppliers could place added strain on national budgets and trade balances. By 2040, Southeast Asia is expected to face a net energy trade deficit of more than US$300 billion. The problem becomes more serious for countries that still maintain fuel subsidies, including Indonesia, Thailand, and Malaysia.

As the financial burden mounts, major energy firms are investing heavily in gas development across Southeast Asia. Shell recently committed to increasing its investments in Malaysia by 9 billion ringgit, or about $2.12 billion, over the next two to three years.

"Just between now and 2035, gas production in Southeast Asia is expected to drop by around 20 percent, and that needs to be backfilled," said Shell CEO Wael Sawan at the Energy Asia conference in Kuala Lumpur. "And the most viable backfill is, of course, LNG because the infrastructure is already gas based."

Other companies are also expanding their footprint. Eni and Petronas are advancing a joint venture to develop gas assets in Indonesia and Malaysia, with a deal expected to be finalized by the end of the year. Japan’s Inpex is exploring resources in six offshore blocks in Sarawak and Sabah, while also working on Indonesia’s Abadi LNG project. Meanwhile, ConocoPhillips has announced new investment plans in Sabah.

For regional leaders, boosting domestic gas supply offers a way to manage costs, strengthen energy security, and reduce reliance on more volatile global markets. LNG is also being positioned as a transition fuel to help phase out coal, while providing reliable energy for emerging industries such as data centers.

Petronas CEO Tengku Muhammad Taufik Tengku Aziz noted that power demand from data centers is expected to more than double to 945 terawatt hours globally by 2030, signaling further energy needs across sectors.

Daniel Yergin, vice chairman of S&P Global, said the role of gas is growing rapidly across global markets. "Countries are not going to be able to generate the electricity they need for growth and for data centers without a bigger role for natural gas," he said.

For Southeast Asia, the path forward will depend on how governments balance the immediate need for secure energy with the longer-term challenges of cost, sustainability, and energy independence.