Data Center Boom to Boost Asian LNG Demand

The rise of AI technology is fueling a global data center boom, which will need reliable 24/7 power generation. Asia is no exception to the recent rise in AI, cloud computing and digitization and will also require additional electricity to power its data centers.

Natural gas, and in Asia’s case LNG, could be the big winner in this tech boom, as gas-fired power dominates the electricity mix in many of Asia’s developed economies, with emerging data center markets favoring gas over coal to power IA due to emissions. reduction targets, Wood Mackenzie said in the report Gas is fueling Asia’s data center boom at the beginning of this month.

Natural gas to support renewables

Asia’s operational data center capacity reached 10.6 gigawatts (GW) in 2023, driven by rapid growth in cloud services, digitization and 5G. Artificial intelligence will generate significant additional demand for energy. And LNG is a prime candidate for meeting short-term demand with a reliable 24/7 electricity supply, WoodMac analysts say.

Japan and South Korea – the world’s second and third largest importers of LNG after China – are also top semiconductor producers, driving additional demand for electricity. The two countries’ combined energy demand from data centers and semiconductor manufacturing could grow to account for about 4-5 percent of total energy consumption by 2030, compared to 0.5 percent today, according to WoodMac.

So, assuming gas meets 40% of requirements, the two countries’ total gas demand for data centers and semiconductor manufacturing will account for about 3% of regional LNG demand by 2030, say gas experts at WoodMac.

Most of the increase in energy demand will be met by gas and renewables, amid slow restarts of nuclear capacity. Coal is unlikely to be an option given the net zero commitments of Japan and South Korea.

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In South Korea, nuclear power has seen a resurgence in recent years after President Yoon Suk-yeol, elected in March 2022, abandoned his predecessor’s policy of phasing out nuclear power for about 45 years. The new president has set a goal for nuclear power to provide at least 30 percent of the country’s electricity in 2030.

This year, nuclear power generated more electricity in South Korea than coal or natural gas for the first time, marking a milestone in one of the world’s biggest fossil fuel importers.

Earlier this month, South Korea’s Nuclear Safety and Security Commission (NSSC) granted a construction permit to Korea Hydro & Nuclear Power (KHNP) to build two new nuclear reactors southeast of Seoul.

However, until South Korea increases its nuclear capacity and Japan restarts more nuclear plants, gas will meet additional power requirements in the short and medium term.

Japan is bringing back nuclear power as a key energy source as it seeks to protect its energy security in the wake of the 2022 energy crisis. The resource-poor country, which must import about 90 percent of the energy it consumes, has made a U-turn in its policy of nuclear power at the end of 2022 as its energy import bill rose amid record high LNG import costs. high prices.

Japan would need to increase its electricity production by between 35% and 50% by 2050 to meet a commensurate increase in demand, a government projection revealed earlier this year.

Elsewhere in Asia, data center growth in Singapore may be limited by power grid constraints, but Thailand is poised for a data center boom that will be fueled mainly by LNG, according to Wood Mackenzie estimates.

Rising demand for LNG from Asia

AI and data center energy demand could boost the already bullish outlook for LNG demand in Asia.

Shell, the world’s largest LNG trader, expects global LNG demand to grow by 50% by 2040 on the back of higher demand in Asia, a coal-to-gas shift in China and an increase in consumption of LNG to fuel economic growth in the South and Southeast. Asia. The global LNG market will continue to grow until the 2040s, largely driven by China’s industrial decarbonisation and rising demand in other Asian countries, Shell says.

AI is fueling growth in US natural gas demand

The rise of AI and data centers is driving a natural gas boom in the United States as well.

U.S. power companies are announcing plans for the largest volume of new natural gas capacity in years as the AI ​​boom increases demand for electricity.

U.S. energy demand is “likely to see growth not seen in a generation,” according to an April Goldman Sachs report.

Data centers worldwide currently consume 1-2% of total power, but this percentage is likely to increase to 3-4% by the end of the decade. That’s because, on average, a ChatGPT query takes nearly ten times as much electricity to process as a Google search, the bank says.

U.S. electricity demand will grow about 2.4 percent each year through 2030, and about 0.9 percentage points of that figure will be tied to data centers, Goldman Sachs Research estimates.

Goldman Sachs expects data centers to use 8% of US energy consumption by 2030, compared to 3% in 2022.

Goldman expects incremental data center power demand to generate about 3.3 billion cubic feet per day (bcf/d) of new natural gas demand by 2030. That estimate assumes gas supplies about 60 percent of approximately 28.7 GW of total data center power demand expected through the rest of the decade and implies a 10% increase in the amount of gas consumed in the electricity market compared to today.

“More notably, this represents a ~50% increase from our previous growth expectations for gas power demand – and adds to the broader constructive backdrop for gas demand growth alongside new LNG export capacity, plant retirements on coal and supporting renewables,” Goldman. Sachs analysts said.

By Tsvetana Paraskova for Oilprice.com

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