The rise of artificial intelligence (AI) technology is driving a significant boom in data centers worldwide, creating an urgent need for reliable 24/7 power generation. Asia is experiencing this surge in AI, cloud computing, and digitalization, leading to a heightened demand for electricity to support its data centers.
According to a recent report by Wood Mackenzie titled Gas Fuels Asia’s Data Centre Boom, liquefied natural gas (LNG) is poised to benefit greatly from this technology boom. Gas-fired power dominates the electricity supply in many developed Asian economies. Emerging markets for data centers are increasingly favoring natural gas over coal to power AI technologies, primarily due to emissions reduction goals.
Growing Electricity Needs in Asia
Asia’s operational data center capacity reached 10.6 gigawatts (GW) in 2023, fueled by rapid growth in cloud services, digitalization, and 5G technology. The demand for electricity is expected to rise significantly due to AI advancements. Analysts from Wood Mackenzie indicate that LNG will play a crucial role in meeting this near-term demand by providing a stable electricity supply.
Japan and South Korea, the second and third-largest LNG importers globally, are also leading semiconductor manufacturers, contributing to additional electricity demands. By 2030, combined power consumption from data centers and semiconductor production in these two countries could increase from 0.5% to around 4-5% of total power use.
Wood Mackenzie estimates that natural gas could fulfill 40% of this growing demand. As a result, gas usage for data centers and semiconductor production may account for approximately 3% of the total LNG demand in the region by 2030.
Renewable Energy and Nuclear Power
The majority of the increase in electricity demand is expected to be satisfied by natural gas and renewable energy sources, as the restart of nuclear capacity progresses slowly. Coal is unlikely to be a viable option due to the net-zero commitments of Japan and South Korea.
In South Korea, there has been a renewed focus on nuclear power after President Yoon Suk-yeol took office in March 2022. He reversed the previous administration’s long-term phase-out plan for nuclear energy. The new goal is for nuclear energy to provide at least 30% of the country’s electricity by 2030. This year, for the first time, nuclear power has generated more electricity than either coal or natural gas in South Korea.
Earlier this month, the Nuclear Safety and Security Commission (NSSC) in South Korea issued a construction permit for two new nuclear reactors to be built southeast of Seoul. However, until nuclear capacity increases and more plants are restarted in Japan, natural gas will be essential for meeting immediate power needs.
Japan is also reintroducing nuclear energy to enhance its energy security following the 2022 energy crisis. The country, which imports about 90% of its energy, shifted its nuclear policy in late 2022 as rising costs for LNG imports escalated its energy bill. Government projections indicate that Japan will need to boost electricity output by 35% to 50% by 2050 to accommodate growing demand.
Opportunities in Southeast Asia
While Singapore faces limitations on data center growth due to power grid constraints, Thailand is set for a data center boom, largely driven by LNG, according to Wood Mackenzie’s estimates.
The demand for LNG in Asia is projected to rise due to the increased electricity needs from AI and data centers. Shell, the leading LNG trader globally, forecasts that LNG demand could grow by 50% by 2040. This growth will be supported by a shift from coal to gas in China and an uptick in LNG usage to fuel economic expansion in Southeast Asia.
Impact on U.S. Natural Gas Demand
The surge in AI and data centers is also prompting a natural gas boom in the United States. U.S. power-generating companies are planning the highest volume of new natural gas-fired capacity seen in years, driven by increased electricity demand.
A Goldman Sachs report from April highlighted that U.S. power demand could grow at an unprecedented rate. Currently, data centers consume about 1-2% of overall power, but this figure is expected to rise to 3-4% by the end of the decade. Notably, a single ChatGPT query requires nearly ten times the electricity of a Google search.
Goldman Sachs estimates that U.S. electricity demand will increase by approximately 2.4% each year until 2030, with about 0.9 percentage points attributed to data centers. By 2030, data centers are expected to consume 8% of U.S. power, compared to 3% in 2022.
Goldman Sachs further projects that the incremental power demand from data centers will generate around 3.3 billion cubic feet per day (bcf/d) of new natural gas demand by 2030. This projection assumes that gas will provide about 60% of the expected 28.7 GW of total data center power demand through the end of the decade, resulting in a 10% increase in gas consumption in the power market.
Analysts at Goldman Sachs note that this represents a significant increase from prior growth expectations for gas demand and complements the broader trends in LNG export capacity, coal plant retirements, and the support of renewable energy sources.
You Might Be Interested In
- How is Natural Gas Used to Make Energy?
- Who is the Leading Producer of Natural Gas?
- What Unit Is Natural Gas Traded In?