報告_MS_能源算力Supercycle_20260521

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原始內容

M May 21, 2026 09:00 PM GMT

Asia Energy Security and AI

Energy Meets Compute: Supercycle Recharges

Energy shocks have become more frequent making energy and economic security critical in an AI world. US$5 trillion-plus investment needs should kick-start a golden age in dependable energy investments to secure AI, food and tech supply chains after a decade of underinvestment. An investment supercycle unlocking US$9 trillion in value beckons.

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For analyst certification and other important disclosures, refer to the Disclosure Section, located at the end of this report.

• = Analysts employed by non-U.S. affiliates are not registered with FINRA, may not be associated persons of the member and may not be subject to NASD/NYSE restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.

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Contributors

Morgan Stanley Asia (Singapore) Pte.+ Mayank Maheshwari Equity Analyst +65 6834-6719

Mayank.Maheshwari@morganstanley.com

Morgan Stanley & Co. International plc+ Martijn Rats, CFA Equity Analyst and Commodities Strategist +44 20 7425-6618 Martijn.Rats@morganstanley.com

Morgan Stanley Asia Limited+

Eva Hou Equity Analyst +852 2848-6964 Eva.Hou@morganstanley.com

Morgan Stanley India Company Private Limited+ Pranitha Shetty Research Associate +91 22 6118-3022 Pranitha.Shetty@morganstanley.com

Morgan Stanley & Co. International plc, Seoul Branch+ Young Suk Shin Equity Analyst +82 2 399-4994 Young.Shin@morganstanley.com

Morgan Stanley India Company Private Limited+ Girish Achhipalia Equity Analyst +91 22 6118-1124 Girish.Achhipalia@morganstanley.com

Morgan Stanley & Co. LLC Joe Laetsch, CFA Equity Analyst +1 212 761-8804 Joe.Laetsch@morganstanley.com

Morgan Stanley MUFG Securities Co., Ltd.+ Takeshi Kitaura Equity Analyst +81 3 6836-5427

Takeshi.Kitaura@morganstanleymufg.com

Morgan Stanley Asia (Singapore) Pte.+

Derrick Y Kam

Asia Economist

+65 6834-8272

Derrick.Kam@morganstanley.com

Morgan Stanley & Co. International plc+ Amy Gower (Amy Sergeant), CFA Commodities Strategist +44 20 7677-6937 Amy.Gower1@morganstanley.com

Morgan Stanley Asia Limited+ Jack Lu Equity Analyst +852 2848-5044 Jack.Lu@morganstanley.com

Morgan Stanley & Co. LLC Devin McDermott Equity Analyst and Commodities Strategist +1 212 761-1125 Devin.McDermott@morganstanley.com

Morgan Stanley Asia (Singapore) Pte.+ Vivek Rajamani Equity Analyst +65 6834-6740 Vivek.Rajamani@morganstanley.com

Morgan Stanley India Company Private Limited+ Hinal Choudhary Research Associate +91 22 6118-2044 Hinal.Choudhary@morganstanley.com

Morgan Stanley MUFG Securities Co., Ltd.+ Reiji Ogino Equity Analyst +81 3 6836-8930

Reiji.Ogino@morganstanleymufg.com

Morgan Stanley Asia Limited+

Sheng Zhong

Equity Analyst

+852 2239-7821

Sheng.Zhong@morganstanley.com

Morgan Stanley & Co. LLC Angel Castillo Equity Analyst +1 212 761-1931 Angel.Castillo@morganstanley.com

Morgan Stanley & Co. International plc, Seoul Branch+ Joon Seok Equity Analyst +82 2 399-4934

Joon.Seok@morganstanley.com

Morgan Stanley India Company Private Limited+

Binay Singh

Equity Analyst

+91 22 6118-1158

Binay.Singh@morganstanley.com

Morgan Stanley & Co. International plc+ Alain Gabriel, CFA Equity Analyst +44 20 7425-8959

Alain.Gabriel@MorganStanley.com

Morgan Stanley & Co. LLC Stephen C Byrd Equity Analyst +1 212 761-3865 Stephen.Byrd@morganstanley.com

Morgan Stanley Asia Limited+ Chetan Ahya Chief Asia Economist +852 2239-7812 Chetan.Ahya@morganstanley.com

Morgan Stanley Asia (Singapore) Pte.+ Ryan M Heng Research Associate +65 6834-6465 Ryan.Heng@morganstanley.com

Morgan Stanley Australia Limited+ Rob Koh Equity Analyst +61 3 9256-8932 Rob.Koh@morganstanley.com

Morgan Stanley Australia Limited+

Samantha R Edie

Equity Analyst

+61 2 9770-1671

Samantha.Edie@morganstanley.com

Morgan Stanley Asia Limited+ Qianlei Fan, CFA Equity Analyst +852 2239-1875 Qianlei.Fan@morganstanley.com

Morgan Stanley MUFG Securities Co., Ltd.+ Yu Shirakawa Equity Analyst +81 3 6836-5432

Yu.Shirakawa@morganstanleymufg.com

Morgan Stanley Asia (Singapore) Pte.+ Daniel K Blake Equity Strategist +65 6834-6597

Daniel.Blake@morganstanley.com

Morgan Stanley & Co. International plc+ Guilherme Levy Equity Analyst +44 20 7425-6616

Guilherme.Levy@morganstanley.com

Morgan Stanley & Co. International plc+

Charlotte Firkins

Commodities Strategist

+44 20 7425-3866

Charlotte.Firkins@morganstanley.com

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Morgan Stanley Asia Limited+ Tim Hsiao Equity Analyst +852 2848-1982 Tim.Hsiao@morganstanley.com

Morgan Stanley Asia Limited+ Yiyi Wang Research Associate +852 3963-4169 Yiyi.Wang@morganstanley.com

Morgan Stanley Australia Limited+ Rahul Anand, CFA Equity Analyst +61 2 9770-1136 R.Anand@morganstanley.com

Morgan Stanley & Co. LLC Stefan Diaz, CFA Equity Analyst +1 212 761-1834 Stefan.Diaz@morganstanley.com

Morgan Stanley & Co. International plc, Seoul Branch+ Chan Park Research Associate +82 2 399-9920 Chan.Park1@morganstanley.com

Morgan Stanley & Co. LLC Jacqueline M Kenny Research Associate +1 212 761-2253 Jacqueline.Kenny@morganstanley.com

Morgan Stanley India Company Private Limited+ Rahul Gupta Equity Analyst +91 22 6118-2233 Rahul.Gupta1@morganstanley.com

Morgan Stanley Asia Limited+ Kaylee Xu Equity Analyst +852 2239-1506

Morgan Stanley Asia Limited+ Chelsea Wang Equity Analyst +852 2239-1118 Jinlin.Wang@morganstanley.com

Kaylee.Xu@morganstanley.com

Morgan Stanley Asia Limited+ Rachel L Zhang Equity Analyst +852 2239-1520 Rachel.Zhang@morganstanley.com

Morgan Stanley Asia (Singapore) Pte.+ Kristal Ji Equity Strategist +65 6834-6949 Kristal.Ji@morganstanley.com

Morgan Stanley Asia Limited+ Lisa Jiang Equity Analyst +852 2239-1282 Lisa.Jiang1@morganstanley.com

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Contents

• 7 Energy Supercycle in Numbers
• 8 US$9trn Energy Value Creation: Who Benefits?
• 11 Calculating the Investment and Value Creation
• 13 Investment Case
• 19 Securing Energy: The Nuts, Bolts and Challenges
• 24 The Supply Chain Paradox: A Solution to Energy Independence
• 28 Energy Security Beneficiaries in Multipolar World
• 32 US$9 trillion of Value Creation: Learnings from Power's Re-rating
• 36 Asia's Competitive Reinvention of Energy Security - A Strategy Perspective
• 40 US Energy = Asia's Supply Chain Diversification
• 45 China: Fortifying Defences, Supporting Asia's Energy Security
• 49 Energy Security - A Key Pillar to Capex and Industrial Supercycle
• 51 Energy: Consumption Keeps Growing
• 53 Power Consumption: The Supercycle Accelerates policy maker
• 62 Power: Security in Diversity
• 68 Power: Key Beneficiaries
• 69 Coal Returns: A Key Pillar of Security and Growth
• 76 Coal: Key Beneficiaries across the value chain
• 77 Power Grids: Unlocking the Gridlock
• 85 Power Grids: Key Beneficiaries of Asia's US$1trn Investment
• 86 Renewables: Pacing the Growth
• 90 Energy Storage: Enabling Security
• 96 Renewables and Batteries: Key Potential Beneficiaries of the US$2trn Investment
• 97 Nuclear: The Long-Term Solution
• 100 Nuclear: Key Beneficiaries
• 101 Natural Gas: The Next Dependable Fuel Supporting Coal and Renewables
• 105 Natural Gas: Key Beneficiaries
• 106 Fuel: A New Refinery Needed Every Year
• 112 Fuels: Key Beneficiaries
• 113 Strategic Reserves: A Multi-Year Capex Cycle
• 116 Upstream: Back in Vogue
• 124 Upstream Energy: Beneficiaries of Higher Oil and Natural Gas Production
• 125 Energy Services and Logistics
• 130 Oil Services, Equipment & Logistics: Key Beneficiaries
• 131 Chemicals: Security Needs Underappreciated
• 137 Fertilizers - Food Security in Focus
• 141 Chemicals and Fertilizers: Key Beneficiaries
• 142 Appendix: Equities to Play Powering AI & The Changing Face of Power Markets

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Energy Meets Compute: Supercycle Recharges

Asia's energy capex will nearly double through the end of the decade.

By 2030, over US$1.2 trillion in new investments will be needed to reduce Asia's import dependence by 100bps based on expected consumption growth. This is in addition to US$4.3trn of investments currently in progress and implies annual capital deployment growth of 11% through 2030 vs. 2% in the past decade. Many themes will provide durable alpha, in our view: powering AI, coal's comeback, a biofuel inflection, a golden age of fuel refining and shipbuilding, heavy equipment capacity expansion, organic chemicals and fertilizer investments, and energy storage deployment. We estimate US$9trn of value creation potential as energy consumption grows faster than expected on rising AI adoption, making multiples re-rate with tighter energy markets and given the need for higher returns to attract investments.

Industry View

India Oil & Gas | Asia Pacific In-Line

Energy security a must-have for all. Energy is the lifeblood of modern economies and security is critical to the future of energy, as there is no energy transition or AI without security. Asia consumes as much energy as rest of the world combined but only produces a third of it at home, making dependable energy investments essential as cross-border energy flows become more fragile and less reliable. Asia's energy investments have been stagnant, but consumption has risen 50% in the past decade, even as investments in traditional energy supply chains fell to their lowest levels ever and are now below data center investments, which need energy to power them. The lopsided investment profile should rebalance in the coming years as energy access and affordability become increasingly critical to the security of power, compute, food, technology, and metal supply chains in Asia.

Asia's energy demand for compute and AI is accelerating at a pace comparable with the United States, with projections indicating that by 2030 data centers will consume roughly one-sixth of all new power units in the region. This surge will not be limited to electricity; it will also drive up requirements for essential fuels and raw materials, such as coal, copper, aluminium, diesel, and other commodities across Asia. As policy makers work to overhaul and strengthen supply chains to safeguard and support AI development, reliable energy investments are receiving a critical boost, positioning the region to meet the challenges of an increasingly digital and interconnected future.

Energy spans sectors, and securing energy for Asia has global implications for equities from copper to commodity traders, fuel refiners, fertilizers, and even shipyards ( Exhibit 23 ). Recent events show that while energy markets may be global, oil insecurity is always local.This makes energy security the top priority in a world where energy demand will only rise. Below we present our key forecasts for 2030 that are not currently expected by the market:

1. Asia's average annual energy investments to double by 2030 ( Exhibit 11 ) and become the second-largest area of spending after AI. We expect power, including coal, to take up more than two-thirds of the investment share, followed by fuel, energy storage and natural gas. The 'Powering AI' theme will drive a new investment cycle in energy systems, particularly storage, coal plants and grid flexibility, as exponential AI infrastructure growth collides with physical-world limitations.
2. The return of coal to secure AI's need for energy , and an inflection in natural gas adoption with new infrastructure investments and fuel refinery investments making a comeback. Asia holds massive coal reserves, estimated at nearly three-fifths of the world's total, which should help slow LNG import needs ( Exhibit 19 ).
3. Diversification of energy sourcing to the US, LatAm and internally within Asia for natural gas and coal; shipbuilding and investments in new tankers rise to cycle highs after a decade of underinvestment.
4. Oil and gas exploration picking up steam, and coal gasification capacity builds double: Shale mining in China, deepwater finds in India/Southeast Asia, and new coal gasification projectsto leverage Asia's vast coal resource base reduce Asia's import dependence on natural gas and fertilizers.
5. Energy storage expands rapidly, even in markets outside of China; Rise of biofuels to double in Asia's energy mix: Energy storage becomes a necessity in grid-level renewable

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deployment with innovative technologies like sodium ion in energy storage gaining traction.

1. Accelerated nuclear power, fertilizer and power grid deployment as combating power shortages becomes even more critical. Data centers cross-subsidise households, with tiered power pricing keeping prices affordable.
2. Corporate balance sheets can support about 75% of the investments , as many are net cash and can increasingly focus on domestic allocation of growth capital. Governments may chip in more aggressively for the remaining 25% of capital needs with policies that kick-start and accelerate investments, and keep energy prices affordable.

Buy dependable energy security beneficiaries as AI pushes Asia into a US$5.5trn capex cycle: We recommend owning energy security assets, as the thematic is inextricably tied to AI, and highlight 70 global equities across the coal equipment supply chain, fuel refiners, petrochemical producers, and natural gas exporters that we expect to benefit the most globally.Areas where we think earnings and dividends could surprise the most in Asia ( Exhibit 24 ) are: 1) fossil- and nuclear-based power generators; 2) the energy storage supply chain, including power grids; and 3) fertilizers. Our shortlist of 7 global equities that should benefit the most: Mitsui & Co, Venture Global, CATL, Keppel Corp, Kansai Electric, Cummins, and Doosan Enerbility.

Exmoll. chergy securly allu rowelly al. A oupelcycle neullalyes A ollapollut by <uou

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... from US$5+trn

Energy Supercycle in Numbers

Exhibit 1: Energy Security and Powering AI: A Supercycle Recharges - A Snapshot by 2030

Energy Logistics

US$1.7trn

US$1.0trn

US$1.6trn Energy Logistics US$0.7trn

4

China

US$3,089bn

US$552bn US$116bn US$128bn

Benefiting these subsectors

Equipment

Suppliers

(Coal Mining, Power Generation

Equipment, Grid

Equipment, Refining

Equipment)

Source: Morgan Stanley Research estimates

Oil Services &

logistics (Rig operators,

offshore energy, tankers)

Power

(Thermal

power generators,

Grid

Operators)

Downstream

Infrastructure

energy (refiners,

chemicals, fertilizers)

Operators (LNG terminals,

Gas pipeline

Operators)

ullallylly race ul rowel Mainels

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T TOKYO GAS

US$9trn Energy Value Creation: Who Benefits?

Reliance

Powering

Exhibit 2: Our preferred 70 equities that should benefit as Energy Security intersects with our global thematics of Powering AI and the Changing Face of Power Markets BHEL Power sembcorp GE VERNOVA inspur)

• ASEAN

India

China

Japan

Australia

Korea

US

EMEA

LATAM

Source: Morgan Stanley Research

The ouvelcycles value uleatlull. A vogyull value ulcatull rulellulal

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Upstream 0&G Production,

1,105

Exhibit 3: The Supercycle's Value Creation: A US$9trn Value Creation Potential

Power Grids, 1,745

Сашал лемАЙ САпІЛ ПАЛАЛРАЙ САРІМА-АА

Refining, 150

Source: Morgan Stanley Research Estimates

CAIIDIL 4.

SUBSECTOR

CHINA

I EMEA

INDIA

JAPAN

M

ASEAN

adarod

Exhibit 4: Global Exposure to Asia's Energy Security as Compute's Need for Energy Inflects

Coal Mining

Equipment & Services

Metals

Oil Services &

Logistics

Upstream

Oil and Gas

Natural Gas

Infrastructure

Refineries

Chemicals & Fertilisers

Waltere

Clean Power

Equipment

Coal & Gas Power

Equipment

Power Grid Equipment

Suppliers

Grid Operators

Nuclear Value Chain

Power Generatorsl

Source: Company data, Morgan Stanley Research

SOUTH KOREA

TAIWAN

AUSTRALIA

W Whitehaven

YANCOAL

BHP

POWER GRIDS

+US $969bn

China US$635bn

India

USS75bn

Others US$181bn

Strategic Storage

+US $71bn

M Calculating the Investment and Value Creation

US$ 61bn

US$ 26bn

Exhibit 5: The US$5tn+ investment supercycle: Dependable energy investments will nearly double vs. the last decade while renewables should plateau after five years of significant growth Others China

US$ 283bnl

Source: Company data, Morgan Stanley Research (e) estimates

Exhibit 6: What's driving the US$5+ trillion supercycle?

Source: Morgan Stanley Research estimates; We include capital work in progress investments in our estimates above for all countries vullals univinly thie

Enersy Logistics

+US $586bn

China

India

US$5,454bn

Energy Security

Investments

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Exhibit 7: How the US$5trn+ investment unlocks a US$9trn value creation potential

Source: Morgan Stanley Research

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Investment Case

A US$5trn+ Supercycle

Energy markets may be global but energy insecurity is always local, with all major economies now focused on the same issue (see Exhibit 10 ). Given that Asia imports roughly 36% of its energy, we see the need for US$5.5 trillion of energy investments over the next five years, which would cut import dependence by nearly a fifth ( Exhibit 12 ). This would also need US$1.2 trillion of new investments to help increase Asia's energy self dependence 100bps on average in Asia by 2030. While we believe Asia will never be fully energy independent, it can reduce its dependence on single-supply sources and diversify its energy needs, both in terms of importing nations and fuel type. We believe spending growth will focus on fossil fuels and dependable energy sources - attracting 2x more annual spend than in the recent past. Renewables may see a plateau in spending after more than doubling over the past decade, as power grids will need to improve with ~US$1 trillion of new investments before the adoption curve for renewables inflects further.

Powering AI is increasingly grabbing policy attention as bottlenecks of energy supply to data centers become more critical and accelerate the need for coal, diesel and natural gas across economies. In an increasingly power-constrained world, AI workloads are structurally changing the shape of electricity demand across Asia. Hence, AI is forcing a greater need for dependable energy, and we believe domestic power and fuel production, and diversification of energy sourcing is becoming more critical for policy makers as AI adoption picks up. Natural gas and coal will help meet Asia's need for dependable power, and as the US shale revolution expands to Asia, it should reshape Asia's energy consumption landscape, solving grid bottlenecks and shortages in energy systems by 2030.

We estimate that Asia's energy consumption will rise by 38 exajoules (EJ) by 2030 ( Exhibit 12 ) - as much as the whole of the Middle East currently consumes, and that about two-thirds of this will be met with domestic sources - renewables, coal, and domestic natural gas; the rest will need to be imported. Import dependence varies greatly by economy, but even excluding China we estimate Asia will consume roughly 20EJ more energy by 2030, with domestic production satisfying about half of this. Energy security is no longer just a talking point for policy makers: Japan has highlighted the need to secure domestic energy supplies and is making strategic investments in shipbuilding and fusion energy; Southeast Asian nations have highlighted energy security as critical; China is focusing on improving "energy resource security guarantee levels"; and India is increasingly looking to diversify its sources of energy imports, and use technologies such as coal gasification and biofuels to reduce import dependence.

Exhibit 8: Energy Security: Investments to translate into a significant uplift in manufacturing capacity across power generation, storage infrastructure and downstream chemicals

Source: Morgan Stanley Research estimates

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Exhibit 9: Energy Security: What we think Asia's economies will spend

Source: Morgan Stanley Research estimates

Increasing energy security is a critical goal

Asia will leverage its coal, palm oil, solar radiation availability, and agriculture feedstock to become more self reliant on energy needs. It will also more aggressively seek energy self dependence in an increasingly multipolar and AI-driven world. Boosting energy security could include the following:

• 1. Asia and Australia are home to 60%+ of global coal reserves with a diverse geographical spread. We see coal consumption for power rising to 4,000mntpa, the fastest growth by 2030 seen in this decade.
• 1. Palm oil, sugar and agri waste will be increasingly leveraged by India and Southeast Asia to diversify their fuel mix, with Asia accounting for ~80% of global palm oil production, 40-45% of global sugar, and home to about half the world's agricultural production.
• 1. Upstream oil and natural gas production has been restricted due to unfavourable pricing and government policies. A material shift which is in the works here could raise output in Asia by 1.7mnbpd, i.e., 5-7% of import dependence.
• 1. Asia is the hub for shipbuilding and accounts for 85% of global capacity. This accelerates Asia's ability to source energy from countries outside of the Middle East a lot quicker.

Energy insecurity has manifested in the form of plastics shortages, curtailment of air travel, lower steel and nickel production, and tiered power pricing for data centers. The tightness in energy markets will keep margins structurally high for the coming decade, incentivizing new investments, while policy makers underwrite some critical components of energy security. Energy investments in Asia have averaged US$660bn ( Exhibit 5 ) annually over the past decade. We expect them to double on average annually until 2030, with evidence of increased spending since 2024 after the Russia-Ukraine conflict.

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Exhibit 10: Asia: What policy makers are saying about energy security

Source: Reuters, Bloomberg, Morgan Stanley Research

China is facing an energy chokepoint : China, the world's largest manufacturing hub and second-largest economy, is increasingly confronting a structural challenge of energy security within a more fragmented, multipolar global landscape. With rising geopolitical uncertainties, supply chain realignment, growing domestic demand, and ensuring reliable and affordable energy have become central strategic priorities. Against this backdrop, China's 15th Five-Year Plan featured an unprecedented US$3-3.8trn investment across energy production, power systems, and downstream infrastructure.

A local focus - grids and fossil-based power drive spending the most

Recent access to energy in Asia is now coming from local markets, despite energy being a global supply chain, as multiple countries ceased fuel and chemical exports, thereby exposing vulnerabilities in

other economies' supply chains. We expect energy capex outside of renewables to nearly double to US$640bn with new projects to secure energy rising to US$1.2 trillion over the next five years, as Asia's energy needs rise 15% by 2030. The key area of growth will likely be power, which will attract about two-thirds of new investment spend, followed by energy storage, oil, natural gas exploration and midstream ( Exhibit 32 ). We see an inflection in spending on natural gas pipelines, coal gasification, biofuels, new fuel refineries, and storage ( Exhibit 32 ). For power, grids will attract the largest part of the spending, then fossil-based power generation, while renewables may see stable capacity additions. Tertiary benefits will flow into commodity trading houses in Japan and shipping corporates, as energy diversification drivers longer supply chains, and also benefits steel, uranium, aluminium and copper consumption supported by over three trillion dollars of power grid and power investments.

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Exhibit 11: Asia's annual energy investment is set to nearly double for the rest of the decade

Source: Morgan Stanley Research estimates

From 'powering AI' to 'securing power' for AI: There is no AI without energy. AI investments have now risen above energy investments in Asia, and we believe power supply tightness in multiple markets will accelerate new dependable energy investments as AI adoption picks up, with 75GW of data center capacity by 2030. While China is well positioned to power its AI needs with renewables, we estimate the rest of Asia will need to invest US$235bn to set up 100GW of coaland gas-based power generation, while supplementing it with batteries and renewable investments of US$1.3tn. We believe India, Thailand and Singapore will see upside surprises to data center capacity growth in the coming years.

Balancing Consumption Growth and Self Reliance

Energy consumption has grown 50% in Asia over the past decade but energy investments have been stagnant at around US$0.7trn ( Exhibit 5 ), leading to rising stresses in energy systems, which now have reached a critical stage as global energy supply chains readjust and AI adoption accelerates energy intensity for economies a lot faster than most policy makers were ready for. Energy consumption in Asia will rise 300bps faster than in the past decade, we estimate, with power consumption growing at twice the pace. Energy investments will accelerate across Asia at its fastest pace for the rest of decade, with every single economy now pledging to improve energy security issues quickly.

Exhibit 12: Asia: US$5.5trn investment = Import reliance on new energy consumption reduces to less than 30%

Reducing Asia's Incremental Energy Import Reliance by 7% (EJ)

Source: Morgan Stanley Research estimates

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Funding the US$5trn investment supercycle

Energy corporates, especially fossil fuel-based power generation companies, upstream oil and gas producers, integrated oils and downstream fuel refiners companies, have under invested over the past decade and generally have very strong balance sheets. Even equipment producers in upstream turbine/transformer and wires supply chain have been cautiously putting capex to work in Asia due to changing fuel mix that favoured green technologies in the primary energy mix over fossil fuels and power grids. With a more balanced outlook ahead and policies presenting less of a challenge for fossilbased operators, we believe corporates with strong balance sheets, especially integrated oils which could also be among the largest power supply chain players, will benefit the most.

As both governments and hyperscalers are underwriting the cash flows for power and energy storage producers, we estimate 75% of investments will be funded by balance sheets of energy companies with a combination of OCF and debt. The remaining funding, we believe, should be a combination of government support and global sovereign support.

Exhibit 13: Funding energy security: Corporate balance sheets are strong with limited debt as the companies have been behind the curve on growing investments vs. consumption growth. Collectively we see US$4trn potential for funding by debt on 2028 multiples

Source: Refinitiv, Morgan Stanley Research estimates

camble 14. The chelyy secury mivesthell oupel cycle. The bull, base allu Deal vases

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Understanding our Bull-Bear framework in the context of a supercycle

Our US$5 trillion-plus investment calculation from a bottom-up country level basis includes each country's needs needs for power, oil, storage and chemical capacities, while triangulating it with government policy, powering AI needs and execution time frames. Our

Issi

US$ Trn

Exhibit 14: The Energy Security Investment Supercycle: The Bull, Base and Bear Cases

Renewables

• Batteries

Renewables +

Batteries

2,069

38% of totall

Source: Morgan Stanley Research estimates

Bear Case

1,448

633

611

Highest

Investment

Environment bear case assumes challenges around availability of manpower, equipment supply chain bottlenecks and delays in execution, especially in India and ASEAN, around projects involving coal plants, new fuel refineries, and upstream oil and gas production. For our bull case, we assume accelerated policy support helping the execution of powergrids, energy storage, storage of fuel and LNG, as well as renewables in China.

307

312

156

102 28

Lower Growth

Scenario

1,062

538

530

270

191

96

Speed of Implementation

1-2 years

3-4 years

5+ years

Aolas Shelyy secury mplem ellatlon vo. Urgency Maulix

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Australia

Securing Energy: The Nuts, Bolts and Challenges

Korea

Japan

China

India

China

ASEAN

China

Feedstock Diversification

'Safety and certainty in oil lie in variety and variety alone.' First Lord of the Admiralty Winston Churchill gave the defining quote on oil diversification in 1913 while addressing the British Parliament after the US navy made the switch from coal to oil. China

Australia

Japan

ASEAN

Securing Asia's Energy

Taiwan

South

Australia

Korea

We expect the ongoing energy shock to trigger more than US$1trn of annual spending ( Exhibit 5 ) on fuel refining, storage, gas pipelines, power grids, and coal and gas power generation through 2030, as well as boosting capex in renewables and nuclear supply chains. We believe the strong balance sheets of energy corporates can fund these new investments ( Exhibit 13 ), especially in the context of tight energy markets.

Tight energy markets also provide upside risks for: 1) fuel margins, as new capacity adds still lag consumption by about half, driving higher

Australia

China fuel refining investments; 2) government support and funding leads to 1bn+ barrels of new fuel storage build in Asia; 3) coal generation rises by more than 350GW, the fastest in a decade, and energy storage rises 6x to ~3,000GwH as power consumption grows 3x faster outside of China; China uses coal-based power generation for intermittent supply to balance renewable loads; 4) gas pipeline infrastructure helps accelerate natural gas adoption with diversification of feedstock supplies to the US; US ethane and propane for plastic manufacturing also makes Asian chemical and fertilizer players more competitive; and 5) organic chemicals such as sulphur that are essential in metal processing, pharma and tech supply chains go from being byproducts to being more valued commodities.

Exhibit 15: Asia's Energy Security Implementation vs. Urgency Matrix

Source: Morgan Stanley Research estimates; not drawn to scale

Taiwan

Taiwan

South

Korea

South

Korea

Taiwan

Renewables

Batteries

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Policy makers began to pay more attention to energy security following the 2022 oil price shock ( Exhibit 18 ). In its wake, we saw a pickup in fossil and nuclear fuel supply chain investments, which were then boosted by AI's power needs. Now, the 2026 supply shock puts the focus more structurally on energy security and not just the energy transition, as Asia goes through its worst access-to-energy challenge in at least 50 years.

Energy supply chains will realign as countries avoid the current chokepoints: Energy supply chain realignment is shifting from "justin-time" cost efficiency to "just-in-case" resilience, driven by geopolitical tensions, trade tariffs (e.g., US tariffs, FEOC restrictions), and the need to decouple from dominant suppliers like the Middle East. This restructuring prioritizes friend-shoring, regionalization, and closer to home. We believe Asia will import a lot more natural gas from the US and Russia incrementally, considering it is essential for power and transport systems, while also seeing higher oil imports from LatAm, Canada and Africa. Fuel systems in Asia will also likely realign as exports were curbed for the first time by China and Thailand. We have already seen signs of this change with the Australia-Singapore energy co-operation and expect other economies such as Japan, Taiwan and Korea to re-look at fuel sourcing options. Coal, which is ample in Indonesia, India and China, will also be key for 'just in case' resilience for power systems. Power grid connectivity in Southeast Asia between countries, such as India-Bangladesh, will get more traction after two decades of limited progress.

While supply chains alone will not help in addressing the energy and national security concerns, economies like Japan and Australia are looking to invest directly in regions like ASEAN to expand the security of supply chains. Japan's Prime Minister highlighted ( Exhibit 10 )

Exhibit 16: Global AI data center capex is set to surpass investment in both power and oil & gas

Source: IEA, Morgan Stanley Research estimates the country's mutual dependence on ASEAN as it channels US$10bn into ASEAN for sourcing crude oil, while Japanese energy corporates are raising their Southeast Asia footprint. In addition, UAE will invest US$5bn in India across energy and storage. Australia has also signed energy supply agreements with Singapore for fuel and LNG.

Bottlenecks to energy security - Limited investments over the past decade and the availability of labour are the key bottlenecks to achieving energy security and powering AI investments. The availability of capacity to build steam turbines, high voltage transformers, fuel refinery CDUs, FPSOs for oil extraction, FLNG infrastructure and skilled labour will drive investment over multiple years (but not the next few given long lead timelines for land sourcing, environmental approvals and construction. Corporate balance sheets are very strong but energy corporates have had high hurdle rates to grow and have normally been more reactive to consumption growth in their investment approach. We believe national oil, power and private players will invest over US$4tn+, or about 80% of the necessary infrastructure to fortify energy needs domestically, while government subsidies, and the collaboration of Global South with Global North will help address funding needs as well. Increasingly the role played by technology companies with large balance sheets to underwrite these investments will become critical.

Innovation will provide solutions where the diversification of supply chains is difficult: Examples include coal gasification in India, green hydrogen supply chains to Singapore and Korea from India, sodium ion batteries for energy storage to make China less dependent on lithium imports, and SMRs (small-module reactors) in India and Southeast Asia.

Exhibit 17: Gas turbine, engine and fuel cell capacity supply developments out to 2030. Gas turbine supply (GW) is set to double between 2025 and 2030, reducing some of the recent bottlenecks in the electrification supply chain

Source: Morgan stanley Research estimates

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Affordability vs. New Investments

The affordability question - Tiered energy prices to become the

norm: Asia is home to some of the most price-sensitive consumers, so affordability is key for any energy source to be adopted. Energy security is expensive and does come with infrastructure which is not always useful but needs investment to create and maintain. Hence, like in power, we believe tiered energy pricing will become even more prevalent as industrial consumers, data centers, airlines, and higher voltage users pay for energy security. In the process they subsidize the lower income consumer groups. We have seen some evidence of this in Malaysia with data centers, Thailand with high volume retail consumers, higher taxes for fuel in India, and lower power taxes for distributed power consumers in the Philippines.

2009 Russia-Ukraine gas crisis

• 2011 Libyan civil war

2022 Russia's

The Challenge: Energy security = Oversupply? - Oil stockholding

Oil demand restraint

Increased domestic capacity for everything from power to chemicals has historically led to oversupply in globally linked commodities, such as plastics and fuel. While we expect oversupply in some parts of the value chain, shipyards, power, fuel and even coal should see the least challenges in terms of domestic pricing. Although we could see a new downcycle take shape in 2029-30 with the startup of new supplies in specific value chains, it is unlikely to be as challenging as the last few years considering the higher cost of capital for economies like ASEAN and India vs. China, which should see capacity growth. Domestic coal in Asia - whether in Indonesia, India or China - should provide competition for US LNG imports, while power, being a highly domestic commodity, should not see many of the challenges of oversupply, especially against a backdrop of rising AI adoption. On equipment and battery supply chains, we see limited risk of oversupply until 2030, considering the rising orderbook.

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Note: The analysis focuses on 85 countries, covering 93% of global primary energy demand, 87% of global

Exhibit 18: Cumulative number of countries with selected emergency response and energy security policies, 1970-2025

Source: IEA Energy Outlook 2025

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The Nuts & Bolts of Securing Asia's Energy Complex

Power: We estimate 320GW of new power generation will be built in Asia by 2030, covering 40% of its new power consumption needs. While China's power generation exceeds consumption, most other economies are struggling to meet their future power needs after half a decade of underinvestment in dependable base load power systems. Renewable power and related supply chains have accounted for 67% of investment in Asia since 2020, but fossil fuelbased power consumption grew 4% and accounted for 70% of total units consumed outside of China. Even in China, fossil-based power generation grew at one of the fastest paces, despite the focus on renewable capacity. We see this adoption in fossil-based power generation accelerating with 440GW+ of new consumption coming from coal and gas, while the pace of renewable adoption slows (vs. the past five years) in Asia, partly also due to grid constraints and reallocation of capital to alternative fuels and new technologies. With with the dependable power fleet aging with an average life of 20+ years in Japan, Korea, Malaysia, Singapore, Australia and Taiwan, we see a replacement cycle in the works.

The nexus between energy and AI is also catalysing policy makers' response to energy security . There are at least two broad dimensions to this relationship. In the race for AI and robotics, energy remains a key bottleneck and power grid investments are the most important part as grids serve as highways for powering AI until dependable supply catches up. Energy storage will also act as a quickto-market solution in the race for AI adoption - and until supply becomes ample, which we believe will take until at least 2030.

Coal and natural gas to take share in power, transport and industrials. We see coal and natural gas making a comeback in Asia's energy security story while natural gas imports become more diversified - a path Asia was already on but which will be accelerated in the coming quarters and years. Both fuels are dependable and diversified in terms of availability globally across US, LatAm, the Middle East and within Asia in countries like Australia, Indonesia and Malaysia. We estimate 500mntpa of new coal consumption needs and 100mntpa of gas consumption in Asia by 2030, driven by transport, AI and household needs for cooking and power. This should keep lower calorific value coal prices supported at higher levels with much lower discounts (at 15-20%) to natural gas vs. the past. While coal will replace 20mntpa of potential LNG imports for power, in absolute terms we do see US LNG imports making up two-thirds of incremental imports in Asia in the coming years as Asia diversifies its gas sourcing, especially in India/ASEAN and Korea/Japan. With oversup- plied global LNG markets, we also see significant pricing power for Asian consumers beyond 2027.

Coal and renewables to work together: Learnings from China. Over the past five years, China has added more renewables and nuclear generation capacity than the rest of the world combined, and solar PV and wind now account for 18% of generation. Despite this, coal demand for electricity rose by more than 25% from 2019 to 2024 and the country also has over 200GW of coal generation capacity under construction. The low capital cost of coal plants in China means that operating them flexibly to support renewables has much lower opportunity costs than in other markets. Even at a 30% capacity factor, its average levelized cost of coal generation at US$80/Mwh is lower than the levelized cost of gas at US$110/MWh.

Fuels, plastics and storage: Asia's fuel consumption increased by 4mbpd from pre-Covid to 2025 and will keep rising until 2030. We estimate Asia will need at least one new fuel refinery to be built every year, i.e., US$12-15bn in annual investments to service this rising need for fuels ( Exhibit 141 ). Storage infrastructure to increase strategic reserves of oil, coal, fertilizers and even natural gas will be built to increase storage from 30-45 days in most economies to nearly 90 days, and will need US$40bn in annual infrastructure capex with implications for steel needs ( Exhibit 153 ), on our estimates. The export ban on fuel and fertiliser exporters in the past two oil shocks and the impact of this on India, Southeast Asia, Australia and Japan should drive new investments in the sector - something we last saw in 2017.

While most countries have focused on diversifying into natural gas and electric fleets for transport, it has become apparent that those efforts are only helping negate the increase in miles traveled by consumers, but not covering new consumers of oil (i.e., new car owners, air travel, etc.). Even supply chains for energy storage and batteries are being diversified away from China, with China itself increasingly focusing on sodium ion technology due to its dependence on lithium and nickel supply chains. We see new refineries being built in India, Thailand, Vietnam and possibly Australia. The shortage of fuel has led to lower petrochemical supply in multiple countries during the present oil shock. While there is excess chemical capacity in Asia and the world, naphtha access is going to be critical and will be a key consideration for new fuel refining capacity.

Chemicals for tech and metal processing supply chains: Metals, which are key in the age of electricity like nickel, uranium and copper, need significant amounts of sulphur to process ore, and sulphur is also used in chip-making for etching. We expect demand for sulphur,

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a by-product of fuel refining, to rise at a 5% CAGR in Asia through 2030, despite Asia already accounting for half the world's consumption. We see new organic chemical investments in India, Thailand, Taiwan and Indonesia to secure supply chains.

Fertilizers: Asia will build at least 20mntpa of new fertilizer capacity by 2030 as consumption rises by 3% annually through 2030. Ensuring the availability of fertilizers at stable prices is imperative for the good of humanity, since globally, in the last 50 years, fertilizers have made a 60% contribution to crop yield growth. Asia is the largest fertilizer-consuming region globally, importing a third of its requirements at US$100bn in 2025. The current shortage of fertilizer supplies is due to limited gas reserves in Asia and high import dependence on the US, Russia and Middle East. For non-nitrogen nutrients, Asia's (ex-China) dependence on countries like Morocco, Canada and Russia for potash and phosphate will likely continue. We see upside to our forecast of 12mntpa capacity additions, especially as new feasibility studies for fertilizer supply additions in India, Philippines, Vietnam and Australia have started as 'indigenous production' and security takes center stage.

Shipping and shipyards: Global shipyard capacity has halved in more than a decade with 85% of capacity now concentrated in China, Korea and Japan . Other countries in Asia are taking note as the need to transport energy and defend supply chains rises. Another positive effect is that the industry helps raise employment locally. In the medium term, as energy supply chains rewire and diversify in Asia towards the US, LatAm and Africa for natural gas, LPG, oil and fertilizers, the miles travelled to ship energy will rise given the distance from the US to Asia, materially higher than from the Middle East to Asia. Undersupply of vessels could sustain for longer than expected, driving elevated asset returns, and an orderbook upcycle.

We have seen new tanker contracts surging in 4M26, but the orderbook/fleet ratio remains lower versus the ratio of vessels older than 20 years/total capacity, highlighting a significant capex cycle ahead for shipyards. As distances rise with Asia diversifying its energy sources, we will need more vessels (especially given the percentage of vessels older than 20 years, which may also need to be demolished). We see a mild probability that the tanker orderbook/fleet ratio could double by 2030 from the end-2025 level, as a combination of old fleet demolitions and new fleets serving longer distances comes into play. ( Exhibit 177 )

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The Supply Chain Paradox: A Solution to Energy Independence

Asia consumes as much energy as the rest of the world and imports about a third of its needs ( Exhibit 10 ). While we expect the US$1tn+ of new investments and the total of US$5tn+ of investments will reduce dependence on imports, with energy imports accounting for a third of new energy consumption, not all is the same across Asia.( Exhibit 19 ). However, there are inherent geographical paradoxes in supply chains which countries have to overcome. Australia and Indonesia have significant hydrocarbon reserves but unfavourable economics have resulted in slower production and insufficient infrastructure to refine them. This is essential as they are also the largest metal ore producers and refiners. Similarly, India is the fastest-growing energy consumer globally but does not have enough oil and natural gas with limited upstream spending for the past decade due to lackluster energy pricing policies. India, Indonesia and China are also home to nearly 60% of global coal reserves ( Exhibit 19 ). Indonesia and Malaysia are the largest exporters of palm oil, which is used for gasoline/diesel fuel blending.

We see new supply chains emerging to solve for these paradoxes in each economy's energy needs, based on coal (using coal gasification), increased biofuels use and batteries, along with storage and new infrastructure development in energy.

Energy supply chains are increasingly exposed and need fortification within Asia and increasingly from the Americas. Fragmentation in the global system and rising trade uncertainty coexist with an ever -greater reliance on cross -border energy flows, as abundant supplies of oil, solar equipment, batteries and soon LNG

continue to move internationally. Yet energy dependency remains a structural weakness across much of Asia. Despite repeated energy shocks over the past two decades, investment has been fragmented, largely private -led, slow to execute, and matched by reactive - rather than forward -looking - policy responses. The current shock has laid bare the depth and diversity of these dependencies.

The imbalance is uneven. Countries such as India, Japan, South Korea and Thailand have built sufficient refining capacity but remain heavily reliant on imported upstream energy. Conversely, Australia, Indonesia and Malaysia are resource -rich upstream but poor economics caused underinvestment in production and downstream refining, with projects often delayed or scaled back. Further downstream, integration into petrochemicals and fertilizers remains patchy, leaving major economies like India and Indonesia structurally import -dependent despite capacity additions.

At the same time, baseload power investment declined across much of Asia in the past decade , following overcapacity in markets such as the Philippines, Singapore and Malaysia, excess capacity in Japan and Taiwan, and rapid renewable expansion in China and India. That backdrop has now reversed. AI, electrification and onshoring have tightened power markets sharply, prompting regulators over the past three years to recommit to baseload generation and grid capex. We see the next investment cycle driven by policy efforts to diversify generation mixes and reduce reliance on single fuels, as electricity becomes the dominant form of energy consumption across modern economies.

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Exhibit 19: Asia: 2007 vs. 2024 - How energy dependency has evolved

Source: FOA, UN Trade, BP Statistics, World Trade, Morgan Stanley Research

Exhibit 20: India's solar manufacturing buildout is accelerating rapidly with major players building integrated facilities

Source: Company, Morgan Stanley Research estimates

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How the US can support Asia's energy diversification

US Shale Revolution

2030 vs 2025

Asia's Natural Gas Revolution

Exhibit 21: US-Asia trade as energy security and feedstock diversification take center stage

+50%

Source: Morgan Stanley Research

+20% Natural Gas affordability*

Gas consumption

Growth (MTPA)

Natural Gas share in Total Energy Mix

Annual Energy Cost Savings (US$bn)

Equity Returns

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The Circularity in Energy Supply Chains

Exhibit 22: Circularity in supply chains remains underappreciated

Fuel Refinery lal

Source: Morgan Stanley Research

Explosives

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Energy Security Beneficiaries in Multipolar World

Energy spans sectors, and securing energy for Asia has global implications, impacting equities from copper to commodity traders, to fuel refiners to fertilizers and even shipyards. We suggest owning key energy security assets - this concept is inextricably tied to AI. These include assets that give nations the ability to further energy self-sufficiency, such as nuclear, energy storage, greater local oil and natural gas production, and refining.

We see a nearly 1.6x torque to the value creation as US$5tn+ in investment ( Exhibit 5 ) across the Asia region ensures security of tech, AI, food and energy supply chains, unlocking US$9tn in value, we estimate. The 70+ equities we select from around the world offer US$1.5tn+ in potential enterprise value creation with 5-30% upside to Street estimates for 2028. Moreover, we believe a re-rating is in the works for energy equities in Asia as investment needs become critical, lifting returns until 2030. Historically, traditional energy corporates have been behind the curve in investing long-cycle capex, which has helped them earn 14-18% through-cycle returns as they capture multi-year margin expansion, something we believe is already being priced into equities via multiples for coal power generators, coal equipment companies, upstream oil & gas producers and fuel refiners.

The acceleration of this investment will be catalyzed by: 1) higher fuel cracks, power prices, shipping rates, fertilizer prices and even chemical spreads, all of which we expect will remain 1.2-1.5x above midcycle levels while consumption growth stresses existing infrastructure. On average, building these projects is a 5-year cycle, and hence immediate acceleration of investment is becoming the need of the hour. With industry and transport power consumption rising nearly 80% in the past 15 years, we see pricing power for these investments, especially as AI becomes a large part of consumption growth for power. 2) Regulated returns will see a higher spread over cost of capital as the need for power grids, gas pipelines and storage terminals, along with power plants, becomes more acute. We also see governments subsidizing these investments by providing cheaper capital and also subsidies for end-consumers.

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Tankers

Exhibit 23: Energy security: Mapping the value chain and who benefits

China Hongqiao

Aluminium Corp

MMG, Whitehaven,

Shaanxi, Glencore

Hanwha Aerospace

Source: Morgan Stanley Research

Refining

Fuel Producers

Transport

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Exhibit 24: Energy Security: The Beneficiaries

Source: Morgan Stanley Research

While we see significant energy security tailwinds across Asia's energy value chain, our bottom-up research highlights several subsectors that look challenged:

Clean power equipment supply chain: China's solar supply chain remains significantly oversupplied with current manufacturing capacity nearly double current global demand. Although we do see a pickup in renewable deployment, the depth of the oversupply, as well as increasing competition from the onshoring of the solar value chain such as in India, will likely challenge profitability in the near to medium term.

Battery components: Similar to China's solar value chain, selected battery components remain in oversupply. Based on our utilization forecasts and assessment of current valuations at a reasonable profitability level, our order of preference is LiPF6 (electrolyte) > separator > LFP cathode > anode > NCM cathode.

Power generators: While we are positive on power generation names, we see challenges in geographies where we see power spread headwinds, limited volume growth and high curtailment of renewables.

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Exhibit 25: Asia Energy Security: Our 70 Global picks and 18 least preferred

Source: Refinitiv, Morgan Stanley Research estimates

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US$9 trillion of Value Creation: Learnings from Power's Re-rating

You can't legislate energy. You can't just, you know, pass a law and suddenly have a lot of energy…. We probably will just have energy, power generation as the de facto currency - Elon Musk

We believe energy equities could re-rate like power equities did from 2023 ( Exhibit 30 ). The similarities from an investment cycle perspective are hinged on security of supply; however, power also had a tailwind of consumption from a power AI narrative, which we believe has now broadened out to the larger energy complex. Industrial, shipyard and equipment players are likely to benefit the most, followed by energy producers and companies helping to solve bottlenecks, such as fuel refiners, and coal-based power and miners.

Exhibit 26: Global DC power demand is growing along with total GPU power...

Source: Morgan Stanley Research estimates

How power re-rated across the value chain

Tight power markets globally catalyzed by powering AI and onshoring of supply chains drove a narrative of demand-led power system reliability , which saw the power sector and related value chain that helped reduce power constraints re-rate significantly. Power consumption growth accelerated globally in 2024, and in Asia it increased by ~50bps for the first time in a decade. This led to a 20-75% rise in multiples and 20-50% earnings upgrades across the power supply chain - across power equipment, power grid, power generation and IPPs - between 2024-26, a re-rating that continues and has surprised most, especially as AI adoption saw energy/ power become a key bottleneck to adoption. We think the rest of energy sector will see a similar multiple re-rating as investors see the tightness in downstream fuel, fertilizer and chemical supply chains.

Exhibit 27: ...which catalyzed the re-rating of power and related equities globally

Source: Morgan Stanley Research

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Exhibit 28: Equipment manufacturers re-rated as power sector capex expectations rose

Source: IEA, Refinitiv, Morgan Stanley Research

Traditional energy valuations in the past decade

Traditional energy equities have seen valuation multiples unchanged over the past decade as investments declined and the risk to fossil fuel consumption rose with competition from alterative fuels/renewables rising, as well as policy headwinds. We expect this to reverse in the coming five years and see a 20-30% re-rating, with the runway to traditional energy consumption becoming a lot longer, helping to improve multiples. policy makers will also likely be supportive in growing fossil fuels as part of the primary energy mix.

Exhibit 30: As energy security comes in play again, integrated and fossil power operators have seen a re-rating

Source: Refinitiv, Morgan Stanley Research estimates

Exhibit 29: Baseload power operators have re-rated as expectations of power demand inflected

Power Demand Growth vs Operator Valuations

Source: IEA, Refinitiv, Morgan Stanley Research

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Reliability drives a re-rating event

Powering AI was fundamentally a reliability story , and this is how we see energy shaping out in the coming years: Hyperscalers needed 24/7 uptime, which tightened power markets significantly at a time when grid and baseload investments were already lagging. Hyperscalers also proved that they were willing to pay a premium for power and for speed to market. This accelerated grid capex and rerated the power equipment value chain (e.g., transformers, switch gear, turbines, EPC) as bottlenecks emerged.

Energy security has the same reliability narrative. The IEA explicitly flags that 'energy security takes center stage' and highlights new vulnerabilities (fuel supply risks plus electricity sector exposure to cyber, operational, and weather hazards). We believe markets will start valuing resilience as a strategic asset ( Exhibit 34 ), and that capex will become less discretionary and more mandatory, driving a new investment cycle ( Exhibit 31 ). Furthermore, where powering AI is concentrated in several economies in Asia, energy security becomes a thematic involving all economies in Asia, especially as Asia experiences its worst energy shock in 50 years.

A key difference between energy security and powering AI previously, is that energy security is a risk-led investment cycle compared to powering AI, which is a demand-led investment cycle. Risk -led themes often produce broader and stickier re-ratings, because they reduce the probability of high impact tail-risk outcomes (e.g., blackouts, rationing, price spikes, policy intervention; Exhibit 30 ). In addition, an energy-security-driven investment cycle is more inelastic.

Exhibit 31: Powering AI and on-shoring of supply chains drove a demand inflection that exacerbated power market tightness at a time when baseload power had seen a decade of underinvestment

Source: IEA, Morgan Stanley Research (e) estimates

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Exhibit 32: Energy security in Asia: US$1.2trn in new energy investments

Exhibit 33: Energy: Where will Asia invest by 2030?

Source: Company data, Morgan Stanley Research estimates

Source: Company data, Morgan Stanley Research estimates

Exhibit 34: Renewable power generators have started to re-rate globally as investors price in a more diversified energy mix

Source: Refinitiv, Morgan Stanley Research

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Asia's Competitive Reinvention of Energy Security - A Strategy Perspective

Daniel Blake, Kristal Ji, Ehsernta Fu

There is a powerful intersection of three of our core themes, Multipolar World , Future of Energy and AI & Tech Diffusion . We use our thematic frameworks to identify underappreciated upside across the energy supply chain.

We also make the case for a broadening of investor positions beyond the crowding in Compute bottlenecks, into less-favoured Commodities and select Capital Goods. This dovetails perfectly with the opportunities identified in this Bluepaper on Energy Security.

Exhibit 35: Asia-EM P/B vs. Trailing ROE & change since 2022 - Strong uplift in profitability for Capital Goods, Commodities and Banks, offering potential to broaden out from crowded exposures to Compute

Source: FactSet, Morgan Stanley Research; Shows median stock in each economic exposure category, as of end 2022 and 7 May 2026

Prefer Dependable Energy & Related Value Chain

The energy security theme has created significant valuation dispersion across the value chain. Metals & Mining stands out as the clear winner with the best combination of low valuation, exceptional growth, and strong returns. Traditional energy (Oil Majors, Coal) and Shipping & Shipyards offer deep value and strong income growth, while we also see opportunities in Batteries and Wind Power Equipment ( Exhibit 37 ).

Meanwhile, the energy transition and Powering AI darlings in the Nuclear Value Chain, Power Gen Equipment and Power Grid Equipment have become expensive after their run and we advise careful stock selection amongst these cohorts.

The Energy Supply Chain - Where Growth Is Not Yet Priced In

We used our thematic strategy frameworks to assess relative opportunities and valuations across the Asia energy value chain. Using the assignments and constituents in Exhibit 25 , we constructed equalweighted groups. The analysis below presents consensus forecasts for the equal-weighted average company in each group.

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Exhibit 36: Growth and Valuations for Energy Security Groups

Source: FactSet, Morgan Stanley Research.

Note on colour coding: Sales/EPS Growth shading compares across groups from 0% (white) to highest (dark blue); Latest Valuations and 10yr percentile shading compares across baskets from cheapest (dark blue) to most expensive (dark red); Group level valuation and performance metrics are calculated based on median of constituents; Data as of May 14, 2026. Past performance is not guarantee of future returns.

Least Preferred: Selected clean power equipment manufacturers and power generators

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Valuations and Growth Outlook

Exhibit 37 shows the historical valuations of 12mf P/E ratios from January 2015. We see cheap relative and historical valuations for Metals & Mining, Fuel Refiners and Integrated Oil Majors. In contrast, the Nuclear Value Chain, Energy & Commodity Traders, Power Gen Equipment and Power Grid Equipment all look relatively expensive.

Exhibit 37: 12mf PE valuation range - Cheap relative & historical valuations for Metals & Mining, Fuel Refiners and Integrated Oil Majors

EBITDA Margin: Historical Distribution (2015-2026)

Source: FactSet, Morgan Stanley Research

ROE: Historical Distribution (2015-2026)

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Overlaying the near-term growth outlook, we see the best opportunities ( Exhibit 38 ) in Metals & Mining, Batteries, Wind Power Equipment and Shipping & Shipyards . Power Grid Equipment & Operators and Power Generators have relatively expensive valuations for their growth outlook, while the Nuclear Value Chain offers strong net income growth at rich multiples.

Exhibit 38: N12M P/E Ratio vs Net Income Growth - Attractive valuations for Metals & Mining, Shipping/Shipyards, Coal Miners, Fuel Refiners & Oil Majors

Source: FactSet, Morgan Stanley Research

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LNG Export Capacity (mtpa)

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CCL Midscale 8 & 9

US Energy = Asia's Supply Chain Diversification

Golden Pass

Asia imported only ~10% of its energy imports from US in 2025. We see the US's share in Asia's energy imports rising as cheaper natural gas, ethane, propane, coal and petcoke supports adoption and diversification in power and chemical supply chains, while increased diesel imports help lower dependence on the Strait of Hormuz.

Natural Gas

On the cusp of a new growth cycle. After a multi-year pause, the US gas market is now on the cusp of another cycle of demand growth, driven by liquefied natural gas (LNG) exports and rising electricity consumption. At the same time, constraints on supply from a maturing industry and pipeline bottlenecks make this next growth cycle look different than history.

Exhibit 39: LNG feedgas demand growth is accelerating (MSe +3.7 bcf/d in 2026) as the next wave of capacity adds start to come online…

Source: EIA, Company Data, S&P Global Platts, Bentek, Morgan Stanley Research estimates

BluePaper

US LNG export capacity is set to more than double. 2025 was been a record year for final investment decisions (FIDs) in new US LNG export projects, with 60 mtpa advancing - boosting an already strong backlog of projects under construction by another ~70%. In total, US export capacity should expand from ~114 mtpa in 2025 to ~225 mtpa by 2030, helping fuel rising consumption in Asia. Further FIDs (final investment decisions) are still possible, and would be additive to this growth and support Asia's energy needs.

Exhibit 40: …US LNG export capacity is set to increase by ~112 mtpa relative to Apr '26 levels (and +118 mtpa relative to end-25 baseline). More FIDs would add to this figure.

Source: EIA, Company Data, S&P Global Platts, Bentek, Morgan Stanley Research estimates

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After ~15 years of stagnation, electricity consumption is starting to grow. This is tied to the combination of data centers (including GenAI), onshoring of manufacturing, and a broader trend of electrification. Our Utilities team forecasts a ~2.6% CAGR over the next

decade. Net of expected renewables additions, we forecast power sector gas demand will rise by 7-8 bcf/d over the balance of the decade.

Exhibit 41: We forecast gas demand from the power sector will continue to grow, with erosion from renewables more than offset by coal retirements and rising electricity consumption.

Source: EIA, S&P Global Commodity Insights, Morgan Stanley Research estimates

Exhibit 42: Assuming no policy changes or new LNG final investment decisions, we expect US gas demand to rise to ~140 bcf/d by 2030, up from ~113 bcf/d in 2025.

Source: EIA, Morgan Stanley Research estimates

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We forecast global LNG demand will rise at a 6% CAGR 2025-30, driven by Asia. After increasing over the last few years, Europe's share of global LNG imports should fall from >30% in 2025 to <25% by 2030. For Asian consumers, US LNG offers attractive supply diversification and pricing relative to other sources - offering greater stability during periods of supply disruption. We expect the bulk of volumes from export projects currently under construction to flow to end-markets in Asia. In addition, on the back of recent events in the Middle East, we see the potential for additional long-term gas sales deals from Asian buyers - reducing cash flow variability and potentially supporting more growth from US exporters like Venture Global and Cheniere .

Exhibit 43: The US is on track to expand its share of global LNG capacity from ~20% to ~35% by 2030, positioning it as the key marginal supplier.

Source: Vortexa, Morgan Stanley Research

US Fuel Refiners

Growing Asia refined product demand tightens global balances and supports margins. Growing refined product demand across Asia is constructive for US refiners, particularly those with Gulf Coast exposure and access to export markets. As Asia consumption outpaces regional refining capacity additions (see Fuel: A New Refinery Needed Every Year ) - driven by sustained transportation growth and petrochemical feedstock demand - incremental barrels will need to be sourced from the global market. As shown by the recent Middle East conflict, the US Gulf Coast is well equipped to be the world's swing refining center, filling gaps left by declining product volumes from key Asian and Middle Eastern exporters. US refined product exports hit all-time highs in month-to-date in May at ~4,250 kbpd.

Exhibit 44: Since the start of the Middle East conflict, shipments to Asia have made up a higher share of total US LNG exports - rising from ~15% prior to ~35% in May so far.

Source: Vortexa, Morgan Stanley Research

US refiners are well positioned from a crude, natural gas, and infrastructure standpoint. US Gulf Coast refiners are among the most competitive suppliers globally, benefiting from advantaged crude sourcing (US, Canada, LatAm), cheap relative natural gas costs, high conversion complexity, and extensive export infrastructure. While US refined product exports are largely concentrated in the Atlantic basin (only ~10% of exports land in Asia), higher Asian consumption should support tighter balances and margins globally. Key stock picks include: VLO and MPC .

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Exhibit 45: The US exports ~3,240 kbpd of refined product, of which ~10% lands in Asia. The Iran conflict has pushed exports to >4 mbpd…

Source: Vortexa, Morgan Stanley Research

Exhibit 47: The US exports ~320 kbpd of refined product to Asia, of which ~30% lands in South Korea…

Source: Vortexa, Morgan Stanley Research

Exhibit 49: US refiners source ~90% of feedstock from North America and LatAm.

Note: 2024 data. Source: Wood Mackenzie, Morgan Stanley Research

BluePaper

Exhibit 46: ...With diesel/gasoil consisting of ~40% of total product exports.

Source: Vortexa, Morgan Stanley Research

Exhibit 48: …With naptha and fuel oil making up ~50% of total product exports to Asia.

Source: Vortexa, Morgan Stanley Research

Exhibit 50: US refiners have benefited from low natural gas prices relative to the rest of the world. In 2026 YTD, Global gas prices (TTF) averaged ~$11/mmbtu higher than US Henry Hub prices equating to a ~$3-4/bbl cost advantage.

Source: Bloomberg, Morgan Stanley Research

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Potential Shortfall in Power for US Data Centers, 2025-28

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US power bottlenecks and Asia's data center need for power

Solution #1: Nat Gas Turbines

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oc

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(gL)

Our latest Intelligence Factory model shows a power bottleneck between 2025 and 2028 totaling 55 gigawatts (GW) ( Exhibit 51 ). Even after we factor in all innovative "time to power" solutions (including Bitcoin site conversions), we project that US data center

Net Shortfall Through 2028

Exhibit 51: US data center power demand

developers will face a net power shortfall of 14-24GW through 2028, equal to 18-30% of needed power ( Exhibit 52 ). This we believe will be a capacity that Asia will power over and above its own power needs for AI. We derive that power-shortfall estimate by comparing the power required to support Morgan Stanley's AI chip forecasts through 2028 with both announced US data center capacity under construction and our estimate of available US grid capacity.

None

30%

18%

We believe the most likely outcome

Source: Morgan Stanley Research Estimates

Exhibit 52: Shortfall in power for US data centers

Source: Morgan Stanley Research Estimates

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China: Fortifying Defences, Supporting Asia's Energy Security Automobiles

40%

1) Transportation electrification across mobility; moving beyond cars into trucks, construction machinery, vessels and ships China is likely to push for a further 40% domestic electric car penetration and at the same time accelerate truck electrification from 17.5% in 2025 to 80-90% in the next five years ( Exhibit 53 ), with battery swap infrastructure building to facilitate electrification, reducing both gasoline and diesel reliance.

As battery costs continue to decline and energy density improves supported by sustained innovation in chemistry, form factor, and manufacturing - electrification is naturally expanding beyond passenger vehicles into broader transportation segments. EV adoption over the past 5-7 years has been concentrated in passenger cars, driven by improving affordability and range. However, we are now seeing a clear inflection where battery technology has reached a level of commercial viability to support electrification in light/heavy trucks and delivery fleets, with real-world economics starting to work.

Exhibit 53: Transportation electrification across mobility segments, reducing oil reliance

Source: Morgan Stanley Research

Adoption

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2) Battery technology upgrades, shifting from lithium-ion to sodium-ion batteries for mineral security Sodium-ion batteries are now commercially viable and look set to unlock a ~1000GWh annual battery market in the next five years ( Exhibit 54 ).

Sodium -ion appears to be at a similar stage today as LFP was in 2020, with limited scale but clear cost and supply chain advantages beginning to gain traction. While sodium -ion only recently entered vehicle applications and still has a negligible share, the setup resembles LFP's pre -inflection phase. LFP subsequently moved into rapid adoption from 2021 onwards, driven by technical thresholds breakthrough of 175Wh/kg energy density, cost competitiveness and improving performance, with market share rising sharply from 4% in 2019 to >70% in 2025 in China, underpinning the mass -market EV ramp-up. We see sodium -ion approaching a similar inflection window, with accelerating capacity build -out, better cold-weather performance and safer, as well as reaching cost parity with LFP currently and a further 35% cost evolution after scaling in future, suggesting the potential to follow a comparable S -curve and become a meaningful incremental driver of transportation electrification and energy storage over the medium to long term.

3) Energy storage deployment to enhance power flexibility This is a result of rising renewable generation. We expect a 2.3TWH cumulative energy storage deployment by 2030 ( Exhibit 55 ). The ESS cost advantage can be seen not only in its levelized cost of energy (LCOE), but more importantly in the ability of electricity inventory to defer or downsize the high opportunity costs of traditional capital-intensive power infrastructure. This time-to-power flexibility and infrastructure deferral value meaningfully enhance the economic case for storage. Battery costs will likely continue to evolve with the coming of the sodium-ion era - cheaper and safer, with the ability to deliver steady energy at low temperatures.

In an increasingly power-constrained world, AI workloads are structurally changing the shape of electricity demand. As inference scales and workload become more user-facing - search, enterprise software, autonomous driving as well as many other real-time applications - power demand will likely become more volatile, spikier and less predictable. These inference-driven loads create sharp peaks rather than steady base-load requirements, increasing the value of peak-shaving and fast-response capacity ( Exhibit 55 ). Energy storage systems are uniquely suited to absorb this volatility - modular and rapidly deployable, able to respond rapidly to sudden load ramp, smoothing peaks without requiring overbuilding of generation or transmission infrastructure, and deferring irreversible investments. As inference inflects, this flexibility should move from a 'nice to have' to a system-level necessity, in our view.

Exhibit 54: Sodium-ion approaching the threshold where LFP stood in 2020 - energy density, supply chain readiness and potential incentive support

Source: SNE, CPCA, Morgan Stanley Research; NaB=sodium-ion batteries

1,128,083

643,544

2,031,813

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200

150

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Exhibit 55: Global ESS annual incremental deployment forecast for data centers…

400

200

Source: Rystad, Morgan Stanley Research (e) estimates

Data Center Energy Storage

Exhibit 56: …including utility-scale ESS in power markets

Source: Rystad, Morgan Stanley Research (e) estimates

The China Shale story for natural gas: The bulk of China's shale gas resource is concentrated in the Ordos Basin (30.5 tcm) - a single basin that is larger than the US's largest gas basin, Appalachian, in terms of shale resources. Appalachian produces gas at a level more than the entirety of China's domestic output in 2025. Yet Ordos today produces only ~4 bcm from deep coal-measure formations less than 1% of Appalachian's output - underscoring the sheer magnitude of the untapped resource-to-production gap. China's deep coalmeasure shale formations in the Ordos, Qinshui, and Junggar basins, have potential for a credible production ramp-up curve for coal-measure shale gas nationally. This, along with the Sichuan Basin resource base, means total unconventional gas could account for 32% of China's gas production by 2030 and over 41% by 2035 - a structural shift comparable in magnitude to the US shale revolution if fructified. The key assumption underpinning this forecast is not geology which is already proven - but the pace of engineering replication: whether China can scale Daji-style development across multiple coal-shale basins.

Source: Rystad, Morgan Stanley Research (e) estimates

4) Continued deployment of renewables and nuclear This is an essential part of electrification, energy security and carbon emission control.

5) Grid modernization To support electrification and powering AI ( Exhibit 57 ).

6) Gas upstream boom, including potential shale gas and coal rock methane revolutions, as well as downstream storage and pipeline building.

7) Chemical security and refining and petrochemical upgrades.

All these are aimed at enhancing self-sufficiency, resilience, and long-term industrial competitiveness.

We outline a framework under which China can simultaneously strengthen energy security while advancing its carbon reduction commitments during the 15th Five-Year Plan. At its core, the approach likely combines diversification of energy supply, accelerated electrification, and systematic decarbonization of the power mix.

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Exhibit 57: China energy security roadmap

China Ordos

Basin

Source: World Bank Data, Morgan Stanley estimates (beyond 2025)

Exhibit 58: China's coal-shale gas resources in place vs. US shale gas resources in place, as of 2025

Source: EIA, PetroChina, Morgan Stanley Research estimates

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Energy Security - A Key Pillar to Capex and Industrial Supercycle

Chetan Ahya, Derrick Kam, Jonathan Cheung

Investment in energy and energy-transition-related categories is one of the four key pillars of the Asian industrial and capex supercycle that we have been highlighting. China has been leading the region in capex related to energy transition, but the rest of the region had already accelerated its spending before the recent geopolitical tensions. The recent energy shock means that energy security has simply moved higher on the policy agenda.

We project capex in Asia to grow at 3x the pace of recent years…

We forecast Asia's capex will reach US$16trn in 2030, up from US$11trn currently. This implies a CAGR of 7% over the next five years, ~3x the pace of growth over 2023-25. Put another way, the US$4.5trn projected rise in capex will be achieved over the next five years. In contrast, it took 12 years for Asia to post the same delta in capex previously.

The strongest industrial cycle since the mid-2000s: Asia is entering a capex and industrial super-cycle - the strongest since the mid-2000s, supported by a sustained rise in capex. Geopolitical tensions are a near-term headwind, but they are catalysing mediumterm energy and defense spending. If/when tensions ease, we expect to see a quick resurgence in the industrial cycle.

Exhibit 59: Asia's gross fixed investment to rise to US$16trn by 2030

Source: CEIC, Haver, IEA, Lowy Institute, Morgan Stanley Research estimates. *We exclude China's real estate capex given the structural decline in property demand.

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…led by rising capex share in structural drivers: Crucially, the rise in capex will be driven by new structural demand drivers of AI and AI infrastructure spending, energy and energy transition, and defense spending. We expect a 16% CAGR in capex in these new drivers over the next five years.

To be clear, these are not just standalone factors: they are intertwined and will have an effect on the industrial cycle that will be greater than the sum-of-their-parts, given that they will have knock-on effects on each other. For instance, the rise in capex will also spill over positively to other segments. It will drive the demand for machinery equipment and commodities that feed into these drivers, which will then lead to knock-on effects as these related sectors (for instance, the producers of capital goods) raise their own capex.

Asia is the production powerhouse - so when Asia's capex rises and global capex does too, Asia stands to enjoy a double benefit. In addition, as the initial rise in capex takes off, this will help to catalyze job growth and wage gains, in turn lifting consumption - which will then also drive capex in the consumption-linked sectors higher too.

Exhibit 60: The rise in capex will be driven by new structural demand drivers - AI and AI infrastructure spending, energy and energy transition, and defense spending

Asia nominal investment in high growth sectors (US$trn) Other broader industrial and intellectual property capex

Source: CEIC, Haver, IEA, Lowy Institute, Morgan Stanley Research estimates. Note: We exclude China's real estate capex given the structural decline in property demand.

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Energy: Consumption Keeps Growing

Energy security is no longer optional, but has become a strategic national priority Datuk Seri Fadillah Yusof, Malaysian Deputy Prime Minister

We must systematically respond to external shocks and challenges, improve energy resource security guarantee levels and counter various uncertainties with the certainty of high-quality development A statement from China's Politburo, a top decision-making body

By 2030, we estimate that Asia will need ~40EJ more energy ( Exhibit 61 ) - as much as the Middle East used in 2025. Much of this will be provided by electricity, as we expect power consumption to grow at a 5% CAGR to 19 trillion units. Consumption growth will be driven by industry, data centers, transport, and fertilizers, among other increasingly important growth drivers like semiconductor fabs. It is also important to note that every energy shock in the last three decades ( Exhibit 62 ) has not structurally shifted the consumption of primary energy, which has continued to grow in pretty much every sector. Weather patterns have also played an important role in consumption growth in Asia in the last three years, with a very hot summer in 2024 driving record power needs, and 2026 looks to be a repeat of 2024.

Every joule of energy consumption growth needs 10c/J of new investment, in our view, and over the past decade we have used a large part of the overcapacity in the energy system. Hence, these new investments may not lead to any structural overcapacity even beyond 2030. There are likely to be some cycles of oversupply as capacity growth is a step function change while consumption grows more linearly.

Exhibit 61: We expect Asia's Primary Energy Consumption to grow at 2.7% CAGR through 2030 with fossil fuels to remain~75% of the mix by 2030 as grid investments and renewable deployment take time

Source: Statistical Review of World Energy, Morgan Stanley Research (e) Estimates

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Exhibit 62: Fossil energy consumption in Asia has consistently grown despite multiple oil shocks since the 2000s

Source: IEA, Morgan Stanley Research

Exhibit 63: Power demand is the most resilient in the global energy complex against disruptions in energy markets

Source: IEA, Morgan Stanley Research

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Associated Capex

Power Consumption: The Supercycle Accelerates

2,021GW

China

US$2,370bn

"Increased investment in comprehensive energy infrastructure across the entire energy supply chain, from upstream development facilities to downstream equipment, in order to support affordable, reliable and secure energy supply, including baseload electricity" - Indo-Pacific Energy Security Ministerial and Business Forum co-hosted by US National Energy Dominance Council Secretary Doug Burgum, Secretary of Energy Chris Wright, and Japanese Minister of Economy, Trade and Industry Akazawa Ryosei. 30GW Japan US$75bn

53GW

South Korea

Securing energy supply for AI has emerged as a durable, system -level investment theme across the power and fuel value chains, distinct from decarbonization targets or short -term price signals. Recent LNG disruptions and extreme price volatility have shifted policy maker and corporate behavior toward reliability, dispatchability, and domestic or regional resilience over pure economic optimization. We think this will drive a new sustained capex cycle across grid infrastructure, battery storage, strategic reserves, utilities, and selective generation technologies. Overall electricity will account for ~30% of Asia's energy needs, up from ~25% currently, as the region electrifies (please contact us for our model).

US$78bn

We believe coal and natural gas will remain mainstays in Asia, meeting slightly over half of demand. They are even more dominant outside China, at about 66%. We have already seen evidence of more coal and natural gas capacity growth in Asia in 2026, and we estimate that by 2030 there will be 350+GW of new coal and ~90GW of new gas-based generation to complement roughly 2,000GW of new renewable generation. Overall Asia's power mix will see renewables' share rise to 42%, complemented by the addition of 3TWh of energy storage by 2030 (6x today's capacity).

Exhibit 64: We expect capacity additions of ~2,500GW over 2026-30 with investments of over US$3trn

Source: Morgan Stanley Research estimates

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Exhibit 65: Power is now ~25% of Asia's energy supply, and we see that rising to ~30% by 2030

Source: Statistical Review of World Energy, Morgan Stanley Research

In Future of Energy: Power - Changing Face with AI we highlighted power consumption was at another tipping point after tripling since 1980. This is being driven by AI power consumption, new supply chains forming and electrification. We forecast 5% annual growth in power consumption in Asia by 2030 ( Exhibit 66 ), or 4 trillion units of new consumption. We also see a greater than expected portion of demand being met by gas and coal, as renewable curtailments continue to rise globally.

We see India's and Japan's power consumption rising 1.5-2x faster than in the previous decade , achieving growth last seen in the early

2000s, while China and Southeast Asia continue to grow at the same expected rate ( Exhibit 68 ). Alongside a significant step up in AI power demand, ambitions to increase power self sufficiency in advanced economies have driven new supply chain formation and increased industrial power demand. Excluding weather effects on power demand, since 2012 we have seen industrial and commercial sector demand for power rise faster than ever in the US, Europe, Japan, and Taiwan. That said, China's anti-involution policy is a risk that could negatively affect industrial power demand, as it reduces overcapacity and increases renewable curtailments.

Exhibit 66: We expect power demand to inflect globally driven by data centers, new supply chains and the electrification of industry

Source: Statistical Review of World Energy, Morgan Stanley Research (E) estimates

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What does our Asia Power Model suggest?

Exhibit 67: We expect data centers, new supply chains and electrification to drive global power demand for the rest of the decade

Source: Company data, Morgan Stanley Research (e) estimates

Exhibit 69: How have our power demand expectations changed?

Source: Morgan Stanley Research estimates

Exhibit 68: All economies are expected to see increased power demand for the rest of the decade, and most are faced with an aging generation fleet

Source: Morgan Stanley Research estimates

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Exhibit 70: Our Asia Power Generation Model suggests ~19trn kWh of annual power demand by 2030

Sytem Loss

366.0

385.4

404.4

425.1

447.4

472.0

472.0

472.0

Source: Statistical Review of World Energy, Morgan Stanley Research (e) estimates

Exhibit 71: How countries stack up on demand and prices

Source: Company Data, Bloomberg, IEX, EMA Singapore, EPPO Thailand, JPEX, Morgan Stanley Research estimates

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China: We expect China's power demand to grow 5% annually through 2030, driven by the electrification of heavy industry, data centers, and further EV penetration. On the supply side, China is building at a breathtaking pace: renewable capacity is set to reach 4,000GW by the end of the decade, close to half the global capacity combined. Yet China is simultaneously doubling down on coal, with significant investments expected, driven by energy security concerns after heatwave-induced grid stress. The critical bottleneck is the grid: China will spend significantly on T&D and energy storage to keep pace with renewable deployment.

India: We see power demand expanding, driven by economic growth, the electrification of end-use sectors, emerging loads such as EVs, and green hydrogen. In addition, large data center players have been aiming at clean power sourcing, and therefore commensurate investments in storage will become inevitable to manage intermittency and variability issues. We assume the share of RE in power supply will gradually increase from 25% in F27 to 35% by F31, with the balance met through thermal. Data center and AI growth in India appears underappreciated, given the rate of change since F24 ( Exhibit 72 ).

Growth

Southeast Asia: Southeast Asia's electricity demand has surged, driven by a 12% rise in electrification rates, urbanization, and the region's role as a global manufacturing hub as well as build out of AI infrastructure in more recent years. On the supply side, coal remains deeply entrenched given its affordability, accessibility and reliability. Grids and storage are heavily dependent on public finance, and uncertainties over renewable remuneration mechanisms continue to deter private capital.

~10x

Japan: Japan faces a unique challenge: electricity demand had been declining for a decade post-Fukushima, but the 7th Strategic Energy Plan (February 2025) now forecasts demand rising driven by data centers, semiconductor fabs, and electrification - reversing the longheld assumption of a secular demand decline. On the supply side solar/wind growth has slowed due to high costs, lengthy permitting, and limited land. Nuclear is making a comeback: the government has dropped the post-Fukushima language of "reducing dependence on nuclear" and now aims for "maximize use", which requires restarting all 33GW of installed capacity (only 12GW has returned so far). Grid investment is rising but faces material cost inflation; Japan's energy self-sufficiency remains low (the lowest in the G7), with fossil

Exhibit 72: India: Data & AI is driving growth for B2B renewable power operators like Cleanmax

Source: CleanMax Enviro Energy Solutions F4Q26 Investor Presentation

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imports still >80% of primary energy - making it acutely vulnerable to supply disruptions and underscoring the urgency of both nuclear restarts and grid modernization. - 0.9 - 0.8 10

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5

Korea: Electricity demand in Korea is climbing steeply, especially with the rise of AI and digital industries. The power needs of data centers, servers, and advanced manufacturing are surging, making reliable high-capacity delivery of electricity more critical than ever. The government recognizes that simply producing enough power is not sufficient - the challenge is moving huge amounts of electricity to where it is needed, much like how goods need highways to reach consumers.

Exhibit 73: We forecast Australia's electricity capex will rise from A$31bn in FY25 to A$53bn by FY30, or a 5-year CAGR of 10.9%

Source: ABS, Morgan Stanley Research

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Australia: We expect 47GW of new generation and 71GWh of energy storage in additional capacity from 2026 to 2030 to meet policy targets (82% renewable power by 2030) and based on our proprietary utilities database. Using the CSIROs 2025-2026 Gencost report, we estimate total power build costs of US$178bn over the same period for new generation (mostly onshore wind, solar, hydro), batteries and transmission/power grids. We think the power market transition is largely resilient to oil market shocks, especially as the Australian Government is developing a prospective East Coast domestic gas reservation policy with the intention of securing domestic supply and decoupling domestic prices from LNG netback. We see ORG and AGL as the most active companies in our coverage in power markets, with returns on new firming investment, but also merchant price risk as new supply comes on stream and/or commodity prices fall.

Exhibit 74: Electricity capex remains very strong, although growth in the pipeline has slowed recently

Source: ABS, Morgan Stanley Research

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Quantifying AI Power Demand

Exhibit 75: How data center power demand compares globally

Source: Morgan Stanley Research estimates

Artificial intelligence and the associated proliferation of data centers represent the most significant new source of electricity demand growth in developed economies in decades. Data centers currently account for ~2% of global power consumption ( Exhibit 75 ) and we forecast they will add 1.2 trillion units (20% of total incremental power demand) to global power consumption, accounting for 5% of power demand by 2030. While there will be varied adoption rates globally, about 45% of these units will be consumed in Asia ( Exhibit 77 ), 45% in US, with Europe largely accounting for the rest. We see a 25% CAGR in power consumption from data centers in 2024-27 and a 20% CAGR in 2027-30. We expect data centers to account for 75% of US power demand growth through 2030, while in Europe they will account for 40% and in Asia 13% (please contact us for our model).

Hardware and energy security: Asia accounts for 60% of global chip manufacturing and over half of AI component manufacturing globally. The manufacturing of hardware for AI is energy intensive but along the life cycle accounts for less energy than the operation phase. The most energy-intensive part is the manufacturing of chips used in GPUs but also in server storage. For example, manufacturing the latest state-of-the-art 3 nanometre (nm) chip requires around 2.3 megawatt hours (MWh) per wafer (Garcia Bardon, et al., 2021). For a typical high-performance server configuration, this amounts to more than 10MWh for manufacturing compared with more than 80MWh for operation over a five-year lifetime. Of the energy needed for manufacturing, 60% is estimated to be for wafer and semiconductor production, where deposition, lithography and etching consume the majority. The remaining 40% is used for auxiliary processes such as water preparation or cooling in the facility.

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Exhibit 76: How data center power demand is shaping up globally

Source: Morgan Stanley Research estimates

Exhibit 77: We expect Asia's total data center power demand to exceed 100GW by 2030

Source: Morgan Stanley Research (e) estimates

The AI Math: Understanding the Impact of Power Costs

Our analysis of a 100MW fully integrated AI hyperscaler (ownership of the powered shell, GPUs and LLM) reveals an interesting dynamic; AI hyperscalers are essentially price insensitive to power ( Exhibit 78 ). We estimate only a ~50bp impact when power prices are raised by ~17% (from US$120/MWh to US$140/MWh), with hyperscalers' ROEs remaining well above 30% even if power prices rise 1.5x to ~US$160/MWh. We see opportunities for power utilities to further differentiate pricing for data centers, which will help to fund additional grid and generation capacity expansion as well as lift returns in the long run.

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Exhibit 78: ROE Sensitivity of an AI hyperscaler

Source: Morgan Stanley Research estimates

Power costs have one of the lowest impacts on AI hyperscaler earnings. For a 20% change in power prices, we estimate earnings are only impacted ~3% ( Exhibit 78 ). This is significantly less than other factors such as revenue per token, model/GPU energy efficiency (which improves with each model generation) and GPU asset life, which have a 10-30% impact on earnings. Our analysis also suggests that the returns and profitability of AI hyperscalers are driven more by pricing, model efficiency and capital costs (data center capex, GPU capex) than by variable operating costs (power, water consumed).

Our analysis takes into account current NVIDIA GB200 GPU pricing, a six-year asset life, and 75th percentile data center construction costs. Our estimates also factor in the current pricing of AI inference charged by Claude. Below are our key findings:

Exhibit 79: Illustrative returns of a 100MW AI hyperscaler

Source: Morgan Stanley Research estimates

Exhibit

80:

Illustrative per token economics for an AI

hyperscaler

Source: Morgan Stanley Research estimates

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Power: Security in Diversity

We encourage economies to diversify their power sources and technologies while... enabling efficient market operation to enhance power system flexibility, resilience and stability Yeo Han-Koo, South Korean Trade Minister

Diversifying Asia's installed power generation capacity has proven critical for resilience to global energy shocks ( Exhibit 81 ). Surging AI/data center demand is forcing a shift to reliable, regionalized energy sources. By reducing reliance on any single fuel or import source, a broader energy mix - combining domestic coal, natural gas, renewables, hydro, and even nuclear - gives countries flexibility to switch fuels when oil or gas prices spike or supplies are disrupted. This flexibility shields consumers and industries from extreme power price surges and blackouts by limiting fuel-cost volatility, while benefiting utilities and governments through more stable operating costs and improved energy security (especially in fuel-importing economies that would otherwise face sharp inflation and balance-of-payments strains). Fuel importers gain the most from diversification, avoiding over-reliance on expensive imports, but resource-rich markets also bolster their resilience by broadening beyond a single dominant fuel, reducing exposure to domestic supply shortfalls or price swings. Power producers with a diversified generation fleet as well as power equipment providers should benefit the most.

How Economies stack up on power generation security

Countries with balanced generation portfolios can substitute fuels dynamically as we have seen in 2026: Japan lifted capacity factor restrictions on coal plants (saving ~0.7 bcm of gas), Korea postponed retirement of 1.5GW coal capacity and accelerated 5.7GW nuclear restarts, and India mandated full coal plant operation during summer peaks. China, with its massive coal fleet (retrofitted for flexible dispatch), domestic gas production, and pipeline imports, has avoided rationing entirely. Similarly with peak power demand in India and Malaysia, we have not seen any power rationing ( Exhibit 81 ).

Exhibit 81: Asia remains largely dependent on imported feedstock for power generation

Source: Statistical Review of World Energy, Morgan Stanley Research estimates

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A Pragmatic Approach to Power Security Ahead.

Rather than viewing coal, gas, nuclear and renewables as competitors, policy makers increasingly are adopting balanced and pragmatic multi-track approach where diversified installed capacity acts as a natural hedge against geopolitical, commodity price, and supply chain volatility. In both China and India, coal retains strong policy support, with clean energy framed not as a replacement but as a supplement - reinforcing a multi-track energy strategy that postpones difficult decisions on coal phaseout as power demand continues to grow ( Exhibit 82 ). China's coal power generation is higher than ever at ~5.5trn kWh in 2025, even as the country installed more than 500GW of solar and wind power in the same year.

Exhibit 82: Asia's power generation mix

Source: Statistical Review of World Energy, Morgan Stanley Research estimates

This multi-track strategy reflects several realities:

• Renewables cannot yet replace baseload: Solar and wind's intermittency requires backup capacity.
• Grid stability concerns: Rapid renewable deployment strains aging grid infrastructure and hence energy storage batteries are becoming the norm for most renewable deployments.
• Economic pragmatism: Coal remains the cheapest baseload option in most Asian markets with wider availability within Asia.
• Energy security: Domestic coal reduces vulnerability to supply shocks.

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Are renewables the only solution? They are part of the solution

Many Asian countries - particularly import-dependent and fossil-fuel-intensive ones - still need to invest in a more balanced generation mix. Expanding home-grown renewable energy capacity (along with supporting grid upgrades, storage, and even selective use of cleaner gas or nuclear power) is widely seen as vital to further fortify Asia's power systems against fuel shocks, however, it is not enough. Renewables' intermittency and reliability remain a key risk in providing wholistic energy security. A significant renewable generation mix would result in policy makers trading fossil fuel accessibility risk with geographical and environmental resource risks (sunlight, wind, reservoir water levels). We see coal and gas power generation remaining highly relevant ( Exhibit 83 ) for the rest of the decade as access to reliable power remains key for policy holders.

Asia's baseload power generation fleet is aging at a time when electricity demand is accelerating and grid investments lag renewable deployment - driven by industrialization, data centers, and electrification. While China and parts of ASEAN have relatively young fleets, Japan, South Korea, Australia, and Taiwan face coal and nuclear assets averaging 20-38 years old, with reliability declining as plants age. This confluence of rising demand and aging supply implies a significant multi-year investment cycle ahead - spanning life extensions, new-build replacements, and accelerated renewables and storage deployment - creating a structural tailwind for equipment OEMs, EPC contractors, and utilities across the region, which have already seen equipment ASPs rise ~20%+ since the start of the decade

Exhibit 83: Dependable baseload power reserve margins are declining across Asia

Source: Statistical Review of World Energy, Morgan Stanley Research estimates

Exhibit 84: Developed Asia's aging baseload needs replacement at a time when power demand is inflecting

Source: IEEFA, repower, World Nuclear Report, Morgan Stanley Research estimates

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Exhibit 85: Power: Gas turbine ASPs have risen materially with orderbooks for turbines reaching a record 100GW in 2025; We did see the slowest demand from Asia in 2025 of the last 20 years with utilities looking at refurbishing over new builds

1Q24

Source: Company Data, Morgan Stanley Research

Diversified Generation Mix = Reduced Economic Shocks

Asia's diversified installed capacity mix provides optionality during fuel-specific shocks ( Exhibit 82 ), a critical advantage repeatedly proven during recent crises. When global LNG prices spiked to over US$100/MMBtu in 2022 during the Russia-Ukraine conflict - a tenfold surge from pre-conflict levels of US$10-15/MMBtu - countries with fuel-switching capacity (coal-to-gas, hydro dispatch flexibility, nuclear baseload) absorbed the shock without severe industrial curtailments. The 2026 Iran conflict and Strait of Hormuz closure, which disrupted 84% of crude oil and 83% of LNG bound for Asia, is exposing the exact same fault lines.

Diversification creates optimization value: Countries with balanced portfolios can exploit commodity price dislocations (buy cheap coal when LNG spikes, dispatch hydro during gas shortages, or run nuclear baseloads while retiring peaker gas plants, etc.).

Exhibit 87: How power prices have changed

Source: EMA, IEX, JPEX, KEPCO, Bloomberg, Company Data, Morgan Stanley Research

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600

500

400

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Exhibit 86: Global power equipment suppliers have seen higher but disciplined capex intensities in recent years as orderbook tailwinds grew from tight power markets

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Exhibit 88: Asia's power prices have risen 15% since 2019 as demand remained strong despite several energy shocks in the past 6 years

Source: EMA, IEX, JPEX, KEPCO, CEIC, Bloomberg, Company Data, Morgan Stanley Research

New capacity additions to drive re-rating for equipment providers

We see coal and gas power equipment markets encompassing boilers, steam and gas turbines, generators, pollution control systems, and balance-of-plant equipment remaining significant despite climate pressures. The market is dominated by a handful of large manufacturers, which are emerging as key beneficiaries of an ageing baseload, fleet which needs replacement and greater diversification in dependable baseload where energy security concerns drive renewed investment in coal-based baseload capacity. With coal and gas generation expected to rise and capacity additions accelerating after a decade of underinvestment, order books for equipment suppliers are likely to strengthen, supporting utilization, pricing power, and earnings visibility across the value chain. We like Siemens Energy, GE Vernova, Mitsubishi Heavy , Yingliu, and Cummins ( Exhibit 90 ).

US to China power Equipment: Our conversations to-date with Cummins, have revolved around whether Chinese power gen OEMs are showing up in the US to capitalize on a supply-constrained market. We believe the inverse dynamic (i.e., US manufacturers competing in China) remains underappreciated, likely for the reason that few companies do so. CMI has manufactured its highhorsepower engines for the Chinese market in Chongqing since at least 2018. With data center demand accelerating 84% Y/Y, or 152% over a two-year stack (China being the only real competitor in this AI race), we believe CMI is significantly better-positioned to benefit from this demand than any of its Western peers.

Exhibit 89: In the equipment space, gas turbine and grid equipment stocks have outperformed

Source: Refinitiv, Morgan Stanley Research

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Asia's power generation: How the economics stack up

Asia's electricity prices have risen 15-20% since 2021 and the market has been steadily moving to more merchant market pricing over pure PPA market. With price-sensitive consumers in Asia and the changes in market structure when combined with grid bottlenecks, we believe it is essential for power generation to remain economical. We

see natural gas and batteries+renewables along with baseload coal providing a good combination to solve for power grid stability while keeping prices affordable ( Exhibit 90 ). Our round-the-clock economics suggest nearly US$50-60/MWh as the generation cost for Asia power systems on 2025 pricing for fuels, and with increased coal and nuclear usage we believe the need for higher grid tariffs will be cushioned by lower fuel costs in India, China and Southeast Asia.

Exhibit 90: Asia power: The economics - coal and energy storage are competing with more expensive imported natural gas

Source: Morgan Stanley Research estimates

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Power: Key Beneficiaries

Exhibit 91: Power Generators & Conventional Power Equipment Providers

Source: Refinitiv, Morgan Stanley Research estimates. * non-covered company

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Coal Returns: A Key Pillar of Security and Growth

"India's robust coal reserves, estimating nearly 400 billion tonnes - among the largest globally - where coal accounts for about 55% of the energy mix and nearly 74% of electricity generation. With annual coal demand currently around one billion tonnes and expected to rise significantly by 2047" Government of India press release.

Asia has three-fifths of global coal reserves, largely in India, China and Indonesia, which happen to be the three largest consumers of energy in the region. Along with Australian reserves, Asia can meet roughly 18 years of energy needs with coal. Coal accounts for 49% of Asia primary consumption ( Exhibit 61 ), and consumption of coal for power and heating has risen in most Asian economies, excluding Korea and Taiwan, which shut down coal-based power generation after 2021 (though this is changing). We see 600mntpa of additional coal consumption in Asia by 2030, i.e., 20bps faster growth than in the past five years, as power, coal gasification and even coal to chemicals/methanol capacity pick up pace. We have seen policy support for coal gasification in India and Indonesia, as well as the refiring of coalbased generation in most economies of Asia, which earlier had looked to shift away from coal.

We estimate coal gasification in India and Indonesia will require 80mntpa of additional consumption, while 200mntpa will be needed for the refiring of coal-based power generation across Asia as AI and industrial needs rise and electricity's share in Asia's energy consumption rises to 25% (vs. 20% currently). China will continue to build coal-based power generation and use it for intermittent loads as renewables grow. The recent policy to allow capacity-based payments on coal power generation does point to policy support for coal power in the mix.

Coal will attract ~US$300bn of new investments in coal-fired power plants and coal mining capex after years of underinvestment due to higher emissions ( Exhibit 92 ). We estimate 40GW of new coal plants will be built in Asia over and above the current 280GW that is already being built.

Coal beneficiaries span the full value chain , led by low-cost producers, exporters, and supporting infrastructure players, as energy security becomes the dominant policy priority. Domestic producers in coal-rich markets (China, India, Indonesia) benefit from higher utilization and pricing, while seaborne exporters (Indonesia, Australia)

gain from tighter supply and strong Asian demand. We like Coal India, Yancoal, Whitehaven. Beyond mining, heavy equipment manufacturers, contractors, logistics, and port infrastructure see higher volumes, while coal-linked power generators benefit from improved dispatch and margins. With underinvestment constraining supply and governments prioritizing reliable baseload over transition fuels, the current environment supports a broad-based upcycle across coal-linked equities. We highlight Caterpillar, Sany, Komatsu and United Tractors.

Caterpillar: One of the Top 7 key picks to benefit, it has mining exposure that is channeled through its Resource Industries segment (~23% of sales), which manufactures and sells equipment used in surface and underground mining operations, such as large mining trucks, large wheel loaders, and dozers. As it relates to energy demand, we estimate that CAT's coal exposure represents low-double-digits of Resource Industries revenue, or low-single-digits of total company revenue.

Cummins: While it does not manufacture heavy mining equipment outright, it is a key supplier of diesel and natural gas engines up to 4,400hp, which power mining equipment globally. The company's exposure to mining is across multiple segments: the majority of ~US$1.2bn Industrial revenues (within Power Systems) are mining related, as well as a meaningful percentage of its US$4bn Parts revenue (within Distribution) and some of its US$1bn Off-highway revenues (within Engines). Notably, Cummins is a large supplier to Komatsu, which itself holds ~25% share of the coal mining industry (by value) globally.

Westinghouse Air Brake Technologies: Primarily a locomotive manufacturer and supplier, mining exposure is embedded within its US$3.9bn Equipment and Component sub-segments. Its core product - electric drive systems, which are mechanically the same systems found in their diesel-electric locomotives - counts Komatsu as its single largest customer within mining.

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Exhibit 92: We expect Asian economies to spend US$318bn in coal investments driven by higher power demand and coalto-gas switching ~US$318bn

250GW; 20 mnt China US$222bn

Source: Morgan Stanley Research estimates

More than for any other fuel, the dynamics in coal markets are determined by a handful of major emerging and developing economies, with China by far the most significant, followed by India, Indonesia and other countries in Southeast Asia. Around half of global coal demand is used for electricity generation in these economies. Gas-to-coal switching in power is accelerating from the current energy shock, both in terms of availability and price push utilities toward coal-fired generation. This represents a dramatic reversal of the pre-war trend where many Asian nations had been transitioning from coal to gas as a "cleaner" fossil fuel bridge.

Coal gasification is another area where we see US$98bn investments by India, Indonesia and China to restart (after a lull in the last five years). Every ton of coal produces 0.8mmscmd of synthetic gas which can be converted into methanol and fertilizers. We estimate

80mntpa of coal gasification projects in Asia to start, permanently replacing 20mntpa of LNG needs. India, we believe, could see up to 300mntpa of coal gasification projects beyond 2030 and support feedstock needs for fertilizer, chemicals and the heating needs of industry.

Policy support taking shape: India's Union Cabinet approved US$4bn financial support for coal/lignite gasification. The scheme aims to advance the national target of gasifying 100mnt of coal by 2030, strengthening energy security, and reducing dependence on imports of key products, such as LNG, urea, ammonia and methanol (see more details here). We have seen similar policy support in China and Indonesia. We see an acceleration of policy action to support more coal-based projects (in the case of China, which is now considering 13 large scale facilities) and also in coal export countries like Indonesia ( Exhibit 93 ).

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Exhibit 93: Coal has re-emerged as the marginal fuel, with switching speed determined more by system design than price alone

Source: AER, PETRA, PNA (Philippines), ERC Thailand, Morgan Stanley Research

Coal is key to Asia's power security

We see economies in Asia doubling down on abundant and cheap coal-fired generation capacity as well as increasing coal stockpiles as energy security concerns grow. We expect ~40GW of additional new coal-fired power generation capacity to be announced in the next few years, sufficient to diversify its current baseload power mix to weather future energy shocks and the impact from changing weather patterns.

Exhibit 94: Asia: Coal power likely to ramp up in Southeast Asia and China/India, even if natural gas imports were to reduce

Source: EMA, IEX, EPPO, ST Tenaga, KEPCO, Taipower, EVN, Statistical Review of World Energy, Morgan Stanley Research estimates

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Coal: Competitive, and works well with gas and batteries - 2024

*2023

Coal is playing a significant role in powering the industrial and data center boom, particularly in Asia. Data centers require reliable, affordable, 24/7 power regardless of geopolitical and external factors, and coal remains a reliable, easy to store and abundant energy source in Asia. 2015

Coal-fired power offers several advantages:

1,800

1,300

• Cost competitiveness: Coal remains the cheapest baseload power source in most Asian markets ( Exhibit 95 ):
• ° China: Coal power costs ~US$40-50/MWh vs. US$60-80/MWh for gas

2019

2020

Exhibit 95: Historically power markets have quickly adapted to higher LNG prices with higher coal-fired generation.

800

500

Source: Statistical review of world energy, Morgan Stanley Research estimates

2021

Europe - RS

Coal-fired Power Generated (TWh)

• ° India: Coal power ~US$35-45/MWh, critical for this price-sensitive market
• ° Indonesia: Abundant domestic coal makes it the cheapest option at US$30-40/MWh
• Reliability and capacity factor: Coal plants typically operate at 60-85% capacity factors, far exceeding solar (15-25%) and wind (25-40%) without storage. This high availability is critical for data centers requiring 99.99%+ uptime.
• Grid stability: Coal's synchronous generators provide inertia and reactive power support critical for grid stability - services that inverter-based renewables require additional equipment to replicate.
• Dispatchability: Unlike renewables, coal power can be dispatched on demand to meet load fluctuations, reducing the need for expensive storage or backup systems.

2022

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Exhibit 96: Coal remains at a significant discount to alternative fuels, which should accelerate gas-to-coal switching

Source: Refinitiv, Morgan Stanley Research.

Underinvestment to reverse

Coal demand is also structurally sticky ( Exhibit 97 ). Power plants are designed for specific coal qualities, limiting fuel flexibility and anchoring demand within defined sourcing pools. At the same time, supply is concentrated (Indonesia low-CV, Australia high-CV) and constrained by years of underinvestment, keeping the market tight. Our bottom-up power generation model suggests Asia's thermal coal demand will continue to remain flattish for the rest of the decade as new generation capacity is added, while coal also acts as a buffer to energy storage and renewable volatility. We also see investments in coal mining rising across Asia by 1.2-1.3x to support the power and natural gas/chemical/fertiliser needs of Asia. Overall we estimate coal's share in primary energy consumption will be near 45% by 2030 (broadly unchanged vs. 2024-25) for Asia vs. expectations of a decline by other agencies.

Exhibit 97: Asia's thermal coal consumption for power

Source: Morgan Stanley Research (e) estimates

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Exhibit 98: Indonesia and Australia are the major exporters of thermal coal in Asia

Source: Sxcoal, Ministry of Commerce (India), Platts, Tex Report, Morgan Stanley Research

Seaborne coal: Pacific Basin to outperform

From a seaborne pricing perspective, we see the strongest support for higher-calorific-value thermal coal grades, particularly Newcastle 6,000 kcal/kg. Our projected c.500Mtpa increase in Asian coal consumption by 2030 is unlikely to translate into one-for-one into seaborne demand. China and India remain focused on domestic supply growth and import substitution, so upward revisions to Chinese coal burn should provide a more stable floor for China's thermal coal imports, rather than signalling a return to strong structural growth in seaborne volumes.

The more direct opportunity for export-oriented producers is likely to be in North Asian import markets, particularly Japan, Korea and Taiwan, where any incremental coal burn from power-plant life extensions or restarts would need to be met largely through the seaborne market. Australian exporters are well placed to capture

this demand given their proximity and high-CV coal grades, while a projected decline in Australian thermal coal production should limit upside in export supply. Recent policy signals reinforce this theme: South Korea has moved to extend the operation of three coal-fired units previously scheduled for closure in 2026, while Taiwan has instructed Taipower to restart two Mailiao coal-fired units from May for an initial three-month period, with the possibility of extension depending on developments in the Middle East. These measures underline coal's renewed role in regional energy security and could weigh on efforts to accelerate coal-fired capacity retirements. Overall, we see Newcastle 6,000 kcal/kg prices supported around US$130/t toward the end of the decade.

More broadly, Pacific Basin exporters should be better positioned than Atlantic Basin suppliers. Indonesia is also well placed to capture demand growth from utilities in Southeast Asia and any upside to Chinese or Indian import demand if domestic production falls short.

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Exhibit 99: Coal: 2025 coal trade flows Asia in million tonnes

Source: Platts, Tex Report, Morgan Stanley Research

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Coal: Key Beneficiaries across the value chain

Exhibit 100: Beneficiaries across the Coal Value Chain

Source: Refinitiv, Morgan Stanley Research. *non-covered company

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Power Grids: Unlocking the Gridlock

"As the AI industry grows rapidly, countries are working to revamp and modernize their aging power grids." -

Jensen Huang CEO of NVidia

Unprecedented Capital Deployment

Access to power via the grid is key in this 'Age of Electricity' and is a US$1trillion investment need ( Exhibit 101 ). A lack of grid capacity is emerging as a critical bottleneck in many regions, driving higher levels of congestion and slowing the deployment of new electricity generation, storage and demand. Grid connection queues have reached record levels worldwide. The combination of surging electricity demand from AI/data centers, industrial onshoring, and

Exhibit 101: A Trillion Dollar Investment in Asia's Grids by 2030

Source: Morgan Stanley Research estimates

renewable integration is driving the largest grid infrastructure investment cycle in history. Renewable curtailments remain high and require faster grid investments than ever.

Grid investments in Asia will be US$1trn in 2025-30 ( Exhibit 101 ) as they catch up with the deployment of renewables over the past decade, with Asia expected to consume 19 trillion units of power (kWh) in 2030. Global grid investment likely topped US$470bn for the first time last year, representing a 16% increase following 15% growth in the previous year. The World Bank estimates Asia needs >US$9trn for power system transformation. For stock investors, we believe grid infrastructure represents lower-risk, longer-duration investments than fuel-specific plays. See key beneficiaries in Exhibit 112 .

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A pivotal issue for security in this Age of Electricity is the speed at which new grids, storage and other sources of power system flexibility are put in place. For the moment, some of these elements are lagging. Investments in electricity generation globally have charged ahead by almost 70% since 2015 to US$1trn per year, but annual grid spending has risen at less than half the pace to US$400bn ( Exhibit 102 ). This increases congestion, delays the connection of new sources of electricity generation and demand, and pushes up electricity prices. Curtailment of wind and solar output is on the rise, as are incidences of negative pricing in wholesale markets, but slow pace of approvals from regulators is holding back grid projects, as are tight markets for transformers and other components.

Grid companies have seen their valuations re-rate by 15% in the past two years, and regulators are allowing for a 20-30% CAGR in new grid investment ( Exhibit 103 ), which should support the next leg of value creation above the cost of capital over the next five years.

How are economies investing?

China: China announced a record Rmb5tn (US$722bn) grid investment over 2026-30 - a 40% increase from the prior five-year cycle - with State Grid Corporation committing US$88 billion in transmission and distribution spending in 2025 alone, driven by the need to integrate 500GW+ of annual renewable additions while maintaining coal as a "flexible, supporting resource" during supply shocks (see our views here).

India - grid expansion and flexibility with storage: As India targets 500GW of non-fossil capacity by 2030, there is a need to expand (to connect RE-rich regions with demand centers) and modernize the transmission network (an RE-heavy system is inherently more complex → new investments in digital grid management, real-time monitoring, and advanced controls to maintain stability). Grid flexibility is a core challenge - there are rapid clean energy adoption and EV penetration increases; variability strains the grid as well as aging coal thermal plants (especially during peak demand and non-sunny/nonwindy hours). Thus, energy storage (battery installations and pumped hydro projects) have emerged as core to the transition. Distribution company performance is improving with narrower losses, better billing, and a shift to profitability, but execution remains uneven. Strengthening discoms (financial and operational health) is critical; here measures such as smart metering and cost-reflective tariffs will likely hold the key. India's energy stack aims to create interoperable, real-time digital platforms for optimizing balancing supply-demand and grid integration.

The future grid is expected to be far more data-intensive - with smart meters, IoT devices and even consumers becoming 'prosumers' who both use and supply energy to the grid. This digital layer should enable new business models (e.g., peer-to-peer energy trading and virtual power plants) and improve overall operational efficiency.

Japan: Japan's power grid investment plan to 2030 is centred on fixing structural transmission bottlenecks to enable decarbonisation and rising power demand, with the government (via METI/OCCTO) targeting roughly ¥6-7 trillion (~US$40-45bn) of transmission investment alongside specific large-scale HVDC projects such as the 2GW Hokkaido-Tokyo corridor (¥1.5-1.8 trillion) and multiple interconnection upgrades that collectively aim to nearly double cross -regional capacity by 2030. The strategy prioritises linking renewable-rich regions (Hokkaido, Tohoku, Kyushu) to demand centres, improving resilience and system flexibility and accommodating incremental loads from AI, data centres and semiconductors, with grid expansion now a critical enabler of Japan's broader energy transition. Government investment and lending plans include direct financial support, including direct loans totaling ¥54 billion to OCCTO to boost critical transmission and interconnector development.

Korea: The Korean government has laid out a multi-phase master plan to build out the energy highway over the next two decades. It is a long-term project aimed to unfold in stages, eventually resulting in a 'U-shaped' HVDC backbone spanning the nation's coasts that supports 20GW of new renewables as well as demand from data centers and high-tech industries.

Malaysia: The government is investing heavily in grid and infrastructure modernization, with state utility Tenaga Nasional committing US$10bn in grid upgrades to support the growth of data centers and more generation from renewables.

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Exhibit 102: Global investments in renewables have slowed as grid constraints and energy security concerns weigh in

Source: IEA, Morgan Stanley Research

Regulated Returns: Incentivizing Investments

Regulated utilities like power grids across different jurisdictions operate under varying return frameworks that influence both the pace of investment and attractiveness to investors. Regulators are increasingly moving to more performance-based grid regulation, supporting accelerated investment recovery mechanisms, which incentivize grid operators to improve service quality and investments. In addition, higher power demand and flexible storage help accelerate capital recovery for grid operators.

Performance-based regulation: Shift from pure cost-of-service to performance incentives, particularly for reliability, renewable integration, and customer satisfaction ( Exhibit 103 ).

Accelerated recovery mechanisms: Many jurisdictions are implementing trackers and riders to accelerate cost recovery for grid modernization and renewable integration.

Exhibit 103: Grid Investments: How regulated returns regimes stack up in Asia vs. the rest of the world

Source: Bloomberg, company data, Morgan Stanley Research

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-60%

-80%

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50%

40%

30%

20%

10%

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Learnings from Europe: High renewables and insufficient baseload generation accelerate grid investments

Global power investment has tilted heavily towards variable renewables while comparatively little new firm 'baseload' or flexible capacity has been added, a mismatch that is showing up as rising curtailment. In 2015, spending on clean power was roughly 2:1 vs. unabated fossil; by 2024 it was about 10:1. Curtailment of renewable power is rising globally ( Exhibit 105 ), especially in places where wind/solar growth has outpaced transmission, storage and flexible demand. Hotspots include Western China and parts of Australia, and they are starting to show up in India as well. Midday oversupply and grid congestion is largely considered to be to blame.

Exhibit 104: European power markets are becoming tight with the baseload gap/demand the highest in central/northern areas

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Source: ENTSOE, Morgan Stanley Research estimates

In China, renewable curtailments peaked at ~9% in 2024, and were ~6.6% for solar power in 2025. Regulators have introduced a policy that requires renewable projects commissioned after June 2025 to have market-linked pricing eventually. At end 2024, 55% of China's total wind and solar power volume participated in market trading and, as this set to rise to 100% in 2026, it is likely the market tariff declining trend will accelerate. In China, wind/solar utilization hours, which reflect actual power generation volume based on operational installed capacity, were about six hours for wind and four hours for solar on average in 2024 for the top 10 operators, so we think gas can play a major role (along with batteries) to provide grid stability and also fulfill the need for mid- to peak power requirements. India, which already has a liberalized power market, has required incremental renewable projects to run around-the-clock since 2024.

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Exhibit 105: Asia's rising renewable generation is driving increased curtailments as grid upgrades lag

2025 Global Power Generation Mix

Source: Statistical Review of World Energy, Morgan Stanley Research

Exhibit 106: Fossil investment share in Asia has declined structurally...

Source: IEA, Morgan Stanley Research

Exhibit 107: ...but remains meaningfully higher in Asia ex-China, highlighting slower transition and continued reliance on fossil fuels outside China

Source: IEA, Morgan Stanley Research

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Exhibit 108: Spot power peak-trough spreads are significantly wider across Asia, making natural gas viable

Source: Company data, Morgan Stanley Research

Exhibit 109: The South Australia Duck Curve (MW) is getting deeper as increasingly more renewables enter the system, making grid strength key

Source: Australian Energy Market Operator, Morgan Stanley Research. Shows average hourly demand. 2026 is for Jan-Apr.

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180

170

160

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120

Despite the significant step up in grid investments over the past few years to harden power grids globally, equipment remains a key bottleneck ( Exhibit 110 ). Lead times on transformers are 2.5-4.5 years. Orders today are being booked for 2027-28 delivery. Manufacturers are adding transformer capacity ranging from 30-100%, but this is in phases to 2028; Bloomberg New Energy Finance forecasts US transformer demand (units) will be 65% larger in 2027 compared to 2023, and we see network capex doubling in 2030 vs. 2023. We believe the grid equipment bottleneck will further tighten power markets, and support demand for gas-based power generation and quick-tomarket off-grid solutions for data centers. Phase Phase

Lead times on transformers remain high: Depending on transformer type, lead times increased from 40-80 weeks at the start of 2022 to 120 weeks at the end of 2023. However, company feedback signals that transformer lead-times may be even higher than this, e.g., Fortune Electric (not covered) estimates 2-3 years, with European suppliers facing lead times that are higher still.

For more details on our previous work on grids, see our report Global Grid Equipment; Reaching a new peak (link).

Exhibit 110: Grid equipment lead times have been rising significantly, and will likely remain a bottleneck in the near term while capacity is added

Source: Wood Mackenzie

Indexed Yearly Electrical Equipment PPI Growth

Grid equipment capacity additions take time, with manufacturers expected to expand by 300-400bp: Siemens Energy recently highlighted that it is investing in its transformer capacity, citing expectations of a 30% increase in transformer production after these investments. GE Vernova noted doubling transformer capacity at its Stafford UK facility specifically. Hitachi is making substantial investments in Finland for a greenfield transformer plant (US$180m), and, on top of additional investments globally, this appears set to double its global transformer production capacity in the medium term. Finally, at its capital markets day, Fortune Electric highlighted increasing capacity by 30% per year in 2026 and 2027, but also that it is fully booked out to 2027. Smaller Asian players are also expanding production facility overseas. For example, JST Power Equipment (not covered) is ramping up a new factory in Poland to address the European market, while expanding its footprint in Mexico. To put these capacity increases into perspective, Bloomberg New Energy Finance forecasts point to demand for transformers being 65% higher in North America in 2027 vs. 2023. For the broader market, Siemens Energy and GE Vernova have seen the total grid equipment market growing at a 10% CAGR over 2022-30, with the market expected to be 75% larger in 2030 vs. 2023 ( Exhibit 54 ).

Exhibit 111: Electrical equipment producer price inflation: Transformers and medium voltage switchgears have seen significant price inflation, but the rate of increase appears to have moderated

Source: Datastream, Morgan Stanley Research

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Grid constraints are pushing the meter power equipment needs from US suppliers

US Power Equipment Manufacturers, such as Cummins (CMI) and Caterpillar (CAT), offer a broad breadth of solutions that are likely to benefit from and propel continued diversification in the power generation mix across Asia. Although typically thought of as diesel reciprocating engine manufacturers, both CMI and CAT offer many more solutions that are well tailored toward a broadening of power generation in Asia. Cummins's portfolio includes diesel generators that deliver up to 3.5MW, and natural gas equivalents that deliver up to 2MW. Beyond reciprocating engines, Cummins has an adjacent battery energy storage solution ranging from 100kWh to 2MWh, positioning the company to serve hybrid and renewable integration applications. Rounding out the portfolio, Cummins's Generator Technologies division manufactures alternators sold under the Stamford and AVK brands, serving sectors including marine, oil & gas, mining, data centers, and telecommunications.

Caterpillar's power generation portfolio spans a similarly broad spectrum. CAT diesel generator sets deliver up to 4MW and its natural gas gensets up to 4.5MW. CAT's most differentiated power gen asset relative to CMI is its Solar Turbines subsidiary, which it acquired in 1981. Solar Turbines provide CAT with a meaningful presence in the midsize (1-39MW) gas turbine market that sits above the reciprocating engine capacity ceiling. The turbines have an installed base of over 15,000 units traditionally used in oil and gas compression/distributed power applications, but have more recently been used in prime power/data center applications. Against this backdrop, the breadth of CMI's and CAT's power gen portfolios position both companies as uniquely capable suppliers to support Asia's rapidly diversifying power generation mix.

The Metals Tailwind: More Grid and Power Generation

Every megawatt of new capacity, every kilometre of transmission line, and every barrel of refining throughput added to the system has one thing in common: it is extraordinarily metals-intensive. The metals value chain - from upstream miners to midstream smelters and downstream fabricators - sits at the nexus of every dollar spent on energy security infrastructure. In aluminium, we like China Hongqiao Group and CHALCO, in copper we like Zijin Mining, CMOC and MMG, and in diversified metals we like Sumitomo Metal.

Copper is the single most critical conductor of the energy security buildout required for AI data centers and power grid expansion. BNEF expects global demand to rise from 28.3Mt in 2025 to 42.4Mt by 2040 - a 50% increase - driven by grid expansion, renewables interconnection, transformer manufacturing and data centre power delivery. Yet mined copper output is getting harder to deliver, with declining ore grades at existing mines and a limited number of new copper mines. Scrap may be able to fill some of the gap but will need more investment in processing capacity. As such, supply/demand for copper appears likely to tighten over the medium/long term, which should keep prices supported and drive an increase in the value of upstream resource interests.

Utilities globally are increasingly substituting high-grade aluminium conductors for copper in high-voltage transmission - delivering equivalent power capacity. The IEA estimates that aluminium demand for grid use alone could reach 21-27Mt/year by the 2040s, more than doubling from current levels. This is a secular demand shift: aluminium smelters with access to low-cost, reliable power (particularly hydro or coal-based) are clear beneficiaries, as grid buildout is non-discretionary and government-mandated.

For the steel industry, increased investment in infrastructure (data centers, power grids, power generation facilities, etc.) should support demand. We anticipate a certain level of benefits from a construction demand perspective for Asia ex Japan. On the other hand, domestic steel demand in Japan is likely to remain on a structural downtrend due to Japan's declining population.

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Power Grids: Key Beneficiaries of Asia's US$1trn Investment

Exhibit 112: Power Transmission & Distribution Equipment Suppliers and Power Grid Operators

Source: Company data, Refinitiv Morgan Stanley Research. *non-covered company

Exhibit 113: Significant aluminium and copper demand will arise from Asia's grid infrastructure buildout

Source: Company data, Refinitiv Morgan Stanley Research. *non-covered company

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Renewables: Pacing the Growth

"Here's the problem: Investments in the right infrastructure are not keeping up. That ratio (of investments in renewable generation to grid infrastructure & batteries) should be one to one."

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António Guterres, Secretary-General of the United Nations

Renewables have been one of the fastest-growing energy sources in Asia over the past five years. We see regulators moderating the pace of growth going forward as the need for base load power rises due to AI, and grid constraints become more acute due to the variability of power supply. We assume renewable capacity expands by 400GW annually on average (vs 450GW in 2025) with US$340bn in annual investments. Batteries for energy storage, coal and natural gas generation could see an upswing in investment to reduce curtailments and make power systems more robust. Hence, we believe pure renewable players may see more limited benefits from the energy investment cycle for the rest of the decade in most markets. Overall, we like companies that aid more adoption of renewable power by providing baseload and grid equipment infrastructure.

Apart from China, Asia should see a step up in building solar and wind equipment supply chains, such as in India and Southeast Asia, to improve access to solar panels and wafers. This should help behind- the-meter renewable deployment to insulate against grid-related challenges, especially in India and Southeast Asia. China might see slower growth in renewable deployment while investment in the upstream supply chain could remain limited considering oversupplied wind turbines and solar panel capacity. We estimate US$2trn in renewable capex across solar, wind, and hydro power generation as 2000GW of capacity is deployed within China (an oversupplied power market) representing 80% of this capacity. India, on the other hand, aims to build solar supply chains from polysilicon to panels while also deploying 230GW of renewables to complement coalbased power generation.

Returns for operators to remain challenged near term: Introduction of market-based price mechanisms as well as curtailments in China, Australia, India and Vietnam where renewable deployment is more advanced are challenging the near-term ROE outlook for operators. Renewables are competing with one another as well as fossil baseload during peak generation periods (i.e., midday when the sun is the brightest) and are inactive during peak demand periods when environmental resource is low. This results in limited revenue opportunities and poor economics for projects without firm take or pay PPAs. Although current energy storage economics do offer optionality for operators to improve returns, this would require additional investments with limited returns visibility. We remain cautious and selective on renewable operators and equipment providers.

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Capacity Addition to 2030

Associated Capex

Exhibit 114: Capacity additions will grow in a more measured way as grid upgrades remain the key bottleneck

1,675GW

25GW

39GW

14GW

45GW

46GW

China US$1,395bn

Source: Morgan Stanley Research estimates

Exhibit 115: The Street expects below mid-cycle ROEs for renewable players, while conventional energy and nuclear players could see the largest ROE uplift

Source: Refinitiv consensus estimates

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PPA Prices Remain Subdued in Asia

In the US, average PPA prices for renewables vary between US$60 and US$75 per MWh, having doubled in the past five years for solar and wind. In Europe, they average near US$70/MWh and have been flattish for the past five years. However, in Asia, due to weaker local currencies vs. USD, PPA prices have declined 15% for solar and wind since 2020 ( Exhibit 116 ). As a result, we have seen a lot more consolidation as the cost of capital has risen, making scale an important factor to keep renewable returns above the cost of capital in India and Southeast Asia. In China, however, a large part of the PPA price decline has been absorbed by solar equipment manufacturers as they cut prices for panels and wind turbines by an average of 20-30% in the past five years.

Exhibit 116: Solar PPAs auctions prices have not had the same pace of decline as equipment costs

Source: PVinfo, Morgan Stanley Research

The Story of Rising Curtailments for Renewables

Curtailment of renewable power is rising globally, especially in places where wind/solar growth has outpaced transmission, storage and flexible demand. Hotspots include Western China, California and the US Midwest, Europe, parts of Australia, northern Chile, Brazil's Northeast, and India's Rajasthan. Midday oversupply and grid congestion is largely the cause. Renewable returns are affected as near-term policy responses are centered on accepting a 'normal' level of curtailment as least-cost, which prevents renewable operators from dispatching power. ( Exhibit 118 ) For the longer term, we expect grid hardening and ESS deployment to reduce curtailment risks.

Exhibit 117: Wind and solar government auction average prices in Europe remain significantly higher than in 2021

Source: Various sources, Morgan Stanley Research

Renewables capacity expansion → system integration in India: The power sector has entered a new and more demanding phase of clean energy transition. In the past decade, the emphasis was on RE addition; now it is on integrating diverse energy sources into a stable and efficient grid. The focus is shifting from lowest-cost energy (LCOE) auctions to system-level economics that value reliability and flexibility. India's power system should be larger, reliable, smarter, flexible, regionally integrated, digitally enabled, and financially sustainable. These objectives can be met through institutional depth, policy support, and improved capability to manage complexity at scale.

How curtailment affects renewable operators' earnings: Curtailment hits earnings mainly by cutting the volume of power a renewable operator can sell to the market. The extent of the impact on earnings depends on the contract/market design and whether the operator is compensated for 'constrained-off' energy. Most merchant/grid PPA contracts do not offer curtailment protection and while CfD contracts in Europe do offer compensation for negative prices, timing, settlement friction and volume risk does exist.

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Exhibit 118: Earnings sensitivity for new solar projects

Source: Morgan Stanley Research estimates. *: Assumes increases in module costs is not passed through and assumes a fixed tariff Power Purchase Agreement.

Asia's Clean Power Value Chain: New Supply Chains Emerge Outside of China

China's solar PV module industry remains in significant oversupply. At end-2025, Chinese manufacturing capacity approached 900GW annually, or enough to supply the entire world's solar demand through 2032. We estimate the oversupply will continue, but rationality among players after multiple years of cash losses could lead to rational but low pricing. We remain cautious on China's solar value chain.

Onshoring of supply chain exacerbates oversupply: The simultaneous onshoring of manufacturing capacity in the US, India and Europe - driven by energy security and industrial policy imperatives that are largely indifferent to the global supply-demand balance have added 190GW of module capacity to date. The net result is a global capacity arms race where every major demand center is simultaneously building domestic supply - on top of China's 900GW of existing capacity - creating a structural surplus that could persist through 2030.

Limited margin expansion seen for China's solar value chain: Polysilicon led the ASP rebound in 2025, underpinned by the NDRC's price-floor policy framework introduced in July. This then passed through to the supply chain for wafers and cells, with 20-45% price rebounds vs. early July. In contrast, modules have been slow to reprice, recovering only 0-3% over the same period as power plants have been reluctant to accept cost increases due to IRR concerns amid uncertain power tariffs after the policy nodes of market tariff reforms introduced in May 2025. In addition, there has been rising curtailment in certain regions of China and module producers' bargaining power remains weak amid oversupply and a fragmented market.

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Energy Storage: Enabling Security

The frequency of energy shocks and increasing renewable curtailments are driving a fundamental investment case for battery energy storage systems (BESS) across Asia, as geopolitical instability in natural gas supply chains is accelerating the economic and policy urgency of pairing renewables with storage. This has reset the opportunity cost of renewable curtailment and grid inflexibility: BESS economics now clear 10-15% IRRs when paired with renewable generation assets, as well as in merchant markets where gas peaker replacement and arbitrage spreads have widened. As ESS economics have reached a turning point, we project global ESS installation additions will post a 55% CAGR, from 500GWh in 2025 to 3000GWh in 2030, with China seeing the most significant deployments in Asia, followed by India.

71GWh

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In addition, the need for electrification in transport in India, China and increasingly Thailand, Indonesia and Singapore is leading to new investments in local battery supply chain development with govern- ment incentives. We estimate 2000GWH of new battery capacity could be built in China with 2378GWh of deployment in storage at 6600 GWh in transport, while India could see 100GWh of battery capacity built with ramp-up of deployment from 20GWh to 150Gwh, potentially by 2030 ( Exhibit 119 ).

CATL and BYD are leveraging the energy storage opportunity in China and the rest of Asia, followed by Reliance and Exide Industries in India and Gulf Development and LG Energy Solution in Southeast Asia and Korea. CATL is expanding its technology into sodium ion cells while Reliance and Exide are building capacity in India. BYD has evolved from an EV manufacturer into the world's leading energy storage supplier with cumulative deployments of over 135GWh across 110+ countries, anchored by its proprietary blade LFP battery platform and fully vertically integrated technology stack. By leveraging its second-generation blade battery amid tight capacity, BYD will be stepping up as one of the EV/ESS battery leaders as well.

Exhibit 119: We expect ESS additions of around 2700GWh by 2030

Source: Morgan Stanley Research estimates

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Key catalysts for deployment:

• Policy acceleration: Philippines, Vietnam, Malaysia, and India have mandated storage-plus-renewable procurement since Q4 2025 (utility companies in India are increasingly offering hybrid solutions, i.e., solar/wind plus battery storage rather than just renewables). South Korea's 563 MW central auction cleared in 2025, signaling merchant market maturation. China's NDRC has encouraged provinces to introduce capacity prices for standalone ESS, following similar moves in five provinces in 2025.
• Cost inflection: All-in BESS capex fell 40% YoY to $125/kWh (ex-China/US) as of October 2025, with levelized cost of storage (LCOS) at $65/MWh making dispatchable solar economically viable.
• Curtailment crisis: China's solar curtailment was ~7% in 2025 (vs. ~4% in the prior year). India curtailed 1,410 GW cumulatively since 2019, signaling a significant need for flexibility assets.

Exhibit 120: Asia's Utility Scale ESS rollout for the rest of the decade will likely be dominated by China, in line with its installed renewable capacity

Source: Rystad, Morgan Stanley Research (e) estimates

Exhibit 121: We see Asia ex-China's ESS adoption rate as similar to China for the rest of the decade, catalyzed by energy security concerns and policy acknowledgement of renewable intermittency issues

Source: Morgan Stanley Research (e) estimates

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We expect utility -scale ESS to be the main growth engine in China over the next five years, supported by policy. In February 2026, China's NDRC encouraged provinces to introduce capacity prices for standalone ESS following similar moves in five provinces in 2025. We see this as an important milestone that accelerates utility -scale ESS development because capacity price support can drive project IRR to attractive levels. With these policies, we expect China's total ESS installation additions to grow from 190GWh in 2025 to 579GWh in 2030. For more details, see Flexible Power - The Next Wave of Growth in AI.

Economics continue to improve: China's utility-scale ESS LCOE (energy storage system, levelized cost of energy) has been significantly lowered over the past three years due to cost deflation, along with lower LCOE of solar power generation. From a solar plus ESS LCOE parity perspective (compared with on-grid benchmark), the current cost structure could allow twice the ESS demand at China's

Exhibit 122: LCOE of solar & ESS (20%, 2H) projects continue to fall

Source: Company data, Morgan Stanley Research (E) estimates

Exhibit 124: Bull/base/bear cases for cumulative ESS deployment in China by 2035

20%, 2H

21% CAGR, 2025-30

14% CAGR, 2025-35

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utility-scale compared with the level of ~190GWh in 2025, and triple by 2030. In our calculations, we raise the ESS attach rate (the percentage of new solar installations) from 20% currently to 30% in 2025 and 40% in 2030. We also assume duration hours improve from 2 hours to 4 hours in 2027 and 5 hours in 2030, to reach cost parity with the on-grid benchmark ( Exhibit 123 ).

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Real ESS demand finally unlocked by new renewable pricing scheme: Previously, real ESS demand hadn't been significantly unlocked, despite the lower LCOE, because there was no arbitrage for utility-scale ESS given a zero price spread between base load and peak load on the power generation side in China. Utility-scale ESS has been largely deployed through mandates (renewables with ESS are allowed to be on-grid first) and a large amount of deployment has been under-utilized (using more and losing more) due to zero arbitrage room and energy loss (85-90% energy efficiency). However, we think the renewable energy trading mechanism introduced in China early this year will be a game-changer, as it should help fully utilize ESS to profit arbitrage in the trading market (perhaps also associated with capacity prices, environmental benefits and ancillary service fees).

Exhibit 123: Future LCOE could allow ESS capacity (attach rate x duration hours) of the project to be 4x larger to reach cost parity with the on-grid benchmark by 2030

Source: Company data, Morgan Stanley Research (E) estimates

Exhibit 125: Base case: annual incremental deployment forecasts

Source: MIIT, Morgan Stanley Research (E) estimates

M Competitive Energy Storage Economics

Battery storage has emerged as a critical enabler of renewable integration and grid stability, with economics improving rapidly. Battery storage costs have fallen sharply, making grid-scale deployments increasingly economic:

• 2024-25 cost decline: BESS system prices have continued to tumble, with utility-scale lithium-ion battery storage costs reaching US$150-200/kWh for 4-hour systems.
• NREL projections: The National Renewable Energy Laboratory's 2025 update sees continued cost declines through 2030.
• LCOS improvement: Levelized cost of storage (LCOS) for large, long-duration utility-scale BESS has dropped significantly across global markets outside China and the US.

Favorable ESS Supply Landscape Drives Adoption

Global ESS cells manufacturing capacity is likely to remain in sufficient for the rest of the decade, which should limit inflationary risks on heighten demand. China will likely remain a critical global ESS supplier despite geopolitical barriers. Localized ESS cell production outside China is developing, but current and near -term scale is still not enough to meet medium -to long -term ESS demand. This should benefit high -end Chinese companies that already have strong track records in overseas premium markets ( Exhibit 127 ).

China - manufacturing capacity expansion for global demand: We estimate China's total nameplate ESS capacity reached ~1,000GWh in 2025, with sales volumes exceeding 600GWh, supported by domestic policies. We expect domestic ESS capacity to continue expanding as utility -scale projects benefit from favorable regulation. We assume half of total battery capacity additions between now and 2030 will be ESS -dedicated, which would bring nameplate ESS cell capacity to ~2,000GWh in 2030.

Although total capacity and shipment numbers are large, high -quality capacity and export -grade volume remain a limited share of the overall base. Much of China's ESS cell output still targets the domestic low -price segment, where technical requirements are lower than in overseas markets.

Exhibit 126: We see current Solar + Battery economics more favorable than gas power peakers

Source: Morgan Stanley Research estimates

Exhibit 127: ESS cell supply-demand by region, 2030

Source: Company data, Morgan Stanley Research (e) estimates. Supply is measured as all announced nameplate capacities; demand is measured as ESS installation volume.

Ex-China ESS capacity is growing: Based on our checks, aggregate ESS cell capacity from non -Chinese suppliers could reach 90100GWh by end -2026, with further room for expansion or conversion to meet non-China demand. That said, time -to -market remains critical for many customers, especially large tech companies, so some buyers may still rely on imported ESS cells despite geopolitical barriers such as tariffs and ITC eligibility.

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The Sodium Era Is Coming

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CATL has already moved sodium -ion batteries into commercial production, with proven reliability in light commercial vehicles operating across extreme temperature ranges, and has confirmed readiness for broader deployment across multiple sectors ( Exhibit 129 ). Beyond commercial vehicles, CATL has also disclosed that sodium -ion batteries are being prepared for passenger-car applications, with certified safety standards and performance metrics comparable to LFP, underscoring that this is no longer a lab -stage solution but an industrialized chemistry poised to scale as volumes ramp ( Exhibit 128 ).

Sodium ion battery for energy storage market: Hyperstrong's 60GWh of orders for sodium-ion batteries showcases energy storage demand for a cold-weather solution that can help control

Exhibit 128: Sodium-ion battery penetration in China's PV mass market

Source: China Passenger Car Association (CPCA), Morgan Stanley Research (e) estimates

energy decay, as well as the technology's higher safety level. After scale-up, the levelized cost of energy (LCOE) of sodium-ion battery energy storage should be more compelling than that of LFP batteries, on our estimates.

LFP

Disruption and penetration. In terms of market penetration, sodium-ion batteries could initially gain traction in light trucks as well as the A0 and A00 passenger vehicle segments. Beyond automotive applications, we see significant potential for sodium-ion technology to replace LFP in the energy storage systems (ESS) market as well. This shift would be supported by key performance advantages, including superior low-temperature charging capability, slower degradation rates and consistent full-power output even at low states of charge, which could greatly enhance reliability for trucks. We think these attributes make sodium-ion a viable and economical alternative to LFP in multiple use cases.

Exhibit 129: Sodium-ion battery penetration in light commercial vehicles in China

Source: CPCA, Morgan Stanley Research (e) estimates

Exhibit 130: Sodium ion battery shipment forecasts in China, and CATL 's estimated market share

Source: Morgan Stanley Research (e) estimates

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Material sourcing diversity. Strategically, the adoption of sodium-ion technology represents a move away from lithium dependency, enhancing energy security and reducing exposure to lithium supply constraints. This transition aligns with broader industry efforts to diversify raw material sourcing while maintaining competitive cost structures and performance standards.

Separator Usage: 17 sq.m./KWh Cost: Rmb 0.03/Wh

Exhibit 131: Sodium battery economy

Specific energy: 175 Wh/kg

Labor Cost: Rmb 0.025/Wh

Source: SMM, company data, Morgan Stanley Research estimates

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Renewables and Batteries: Key Potential Beneficiaries of the US$2trn Investment

Exhibit 132: Renewables & Battery Equipment Suppliers

Source: Company data, Refinitiv, Morgan Stanley Research. * non-covered company

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Nuclear: The Long-Term Solution

Nuclear power represents the only proven technology capable of providing large-scale, carbon-free baseload electricity 24/7. However, it faces significant challenges around cost, construction timelines, and public acceptance. The combination of climate goals, energy security concerns, and AI power demand is driving renewed interest in nuclear:

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• Climate Imperative: Only carbon-free baseload technology at scale
• Energy Security: Reduces dependence on fossil fuel imports
• Tech Sector Demand: Microsoft, Google, Amazon all announced nuclear PPAs for data centers
• Advanced Reactor Designs: Small modular reactors (SMRs) promise lower costs and faster deployment, with modern technology greatly improving operational safety

US$30bn

Exhibit 133: We expect US$160bn in nuclear value chain-related capex in Asia over the next five years

1GW Taiwan US$10bn

0.1GW

Source: Morgan Stanley Research estimates

Australia

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Case Study: Rise in Nuclear Adoption Lessons from the 1970s

Oil price shocks in the 1970s drove energy security concerns, prompting rapid expansion of nuclear power during this period. Nuclear energy development recorded unprecedented growth, followed by decades of slower additions. During the peak construction period of the 1970s, an average of 25-30 new nuclear units began construction each year. By 1980, 253 nuclear power plants were in operation worldwide, with an additional 230 units under construction. Global nuclear capacity grew from less than 1GW in 1960 to

>100GW by the late 1980s, and further to >200GW by 1990 ( Exhibit 134 ). In the US specifically, approximately 95GW of nuclear capacity came online between 1970 and 1990, with 46 reactors commissioned in the 1980s alone.

Today, similar drivers to those in the 1970s are re -emerging, supporting the push for increased nuclear power generation.

While the factors that drove the significant slowdown in nuclear power plant additions since the 1980s remain relevant, political and financial commitment to project completion is strengthening.

Exhibit 134: Nuclear power has declined in the global energy mix since the 1980s

Nuclear Power Generation (TWh)

Source: Statistical Review of World Energy, Morgan Stanley Research

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India's Nuclear Power adoption strategy

Nuclear accounts for 3% of power generation with operational capacity of 8.8GW, which we estimate will rise by 7GW by 2030. As per the Department of Atomic Energy in India, India has been pursuing a three-stage nuclear power programme to optimally utilize its limited uranium resources and exploit its vast thorium reserves by a nearly closed fuel cycle. Stage I: Use of natural uranium in Pressurized Heavy Water Reactors (PHWR); Stage II: The fissile material recovered from spent fuel of the first stage is used as fuel in Fast Breeder Reactors (FBR). The FBRs are also designed for breeding fissile uranium-233 from fertile thorium-232 used in the blanket; Stage III: Thorium utilization is envisaged as using uranium-233 and thorium-232 for long-term energy security in a sustainable manner. In early April 2026, India entered the second stage of its three-stage nuclear power program with the successful attainment of criticality (controlled chain reaction) of the 500MWe Prototype Fast Breeder Reactor (PBFR) at Kalpakam, Tamil Nadu. This milestone implies that the reactor is now operational and can produce more fuel than it consumes, a key step towards leveraging India's large thorium reserves. India is now the second country after Russia to operate a commercial fast breeder reactor. The reactor will commence commercial production by late 2026 or early 2027.

The government had approved allocation of US$2.3bn to design, develop and deploy Small Module Reactors (SMR). At least five SMRs are due to be operational by 2033. The SHANTI Bill, 2025 (Sustainable Harnessing and Advancement of Nuclear Energy for Transforming India) consolidates regulation, enforcement, civil liability and dispute resolution within a single statute, reducing legal complexity and compliance uncertainty.

Nuclear: Not a Near-term Solution

Nuclear remains a long-term infrastructure play, not a near-term tactical investment. Even with accelerated development, it cannot meaningfully address the 2026 energy security crisis or the late2020s surge in AI-related power demand, given long lead times, limited skilled labor, and safety constraints.

Large Reactors:

• Design and Licensing: 3-5 years minimum
• Construction: 5-10 years for modern builds
• Total Timeline: 8-15 years from decision to first power

SMRs:

• Design Certification: 3-5 years (many designs still in this phase)
• Licensing: 2-3 years for first-of-a-kind
• Construction: 3-5 years (theoretical; unproven at scale)
• Total Timeline: 8-13 years realistically for first commercial units

Financial and Regulatory Hurdles: Beyond construction timelines, nuclear faces substantial barriers:

• Cost Overruns: Historical pattern of 2-3x cost overruns on nuclear projects continues. Vogtle Units 3&4 in Georgia (U.S.) final cost was US$35bn vs. the US$14bn original estimate.
• Financing Challenges: Long construction timelines and high capital intensity make nuclear difficult to finance without government support. Cost of capital typically 2-3% higher than fossil or renewable projects.
• Regulatory Uncertainty: Licensing processes remain lengthy and unpredictable, adding risk premium. Post-Fukushima safety requirements increased costs 20-30%.
• Public Acceptance: Remains a significant barrier in Japan, Germany, and many other markets. Even in pro-nuclear countries like France and China, new facilities faces local opposition.
• Supply Chain Constraints: Nuclear supply chain atrophied during decades of limited construction. Large forgings, reactor pressure vessels, and specialized components have limited manufacturing capacity and long lead times.

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Nuclear: Key Beneficiaries

Exhibit 135: Nuclear Power: Supply Chain Beneficiaries

Source: Company data, Refinitiv, Bloomberg, Morgan Stanley Research

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Natural Gas: The Next Dependable Fuel Supporting Coal and Renewables

Natural gas is recognized as a key stabilizer in a "new energy system" where coal shifts to a supporting role, and high renewables require immediate, flexible backup. (NDRC recommendation ahead of the 15th Five Year Plan)

Global LNG markets have transitioned from a potential multi-year supply glut to now facing a multi-year loss of supply. Investors are currently debating the implications of this reset as near-term elevated gas prices, ongoing demand destruction and visibility beyond 2027, particularly in price-sensitive markets in Asia (details here) weigh on natural gas stocks.

While in absolute terms we do see 100mntpa of LNG imports rising in Asia by 2030, as gas fired power plants and gas for transportation needs rise with better infrastructure, we do see ~20mntpa of LNG consumption moving to coal in Asia as new coal and coal gasification projects start in India, China and ASEAN. Bio-gas also helps reduce the need for imports of LNG apart from higher domestic gas production, which we estimate will rise at a 4% CAGR in 2025-2030 in Asia as E&P capex picks up in the next few years. In addition, conducive government policies around reduced royalties and more liberal profit sharing should help sustain gas production with reduced decline rates in Indonesia and India, while shale production growth ( Exhibit 165 ) should be supportive of China's domestic production ( Exhibit 168 ).

That said, we do think natural gas will continue to play a key role in transforming Asia's energy consumption landscape. As energy security becomes increasingly critical for Asian governments, gas infrastructure investments, namely cross-country pipelines, last mile access, LNG import facilities and potential storage (which have significantly accelerated in the past decade) will continue to get built. Storage investments in particular will accelerate (with only a few economies, such as Taiwan and China, currently having multi-day/ week consumption buffers). Beyond 2027, the combination of nearterm demand softness and buildout of US export infrastructure (~50-75mntpa) will re-usher a glut, soften prices and revitalize consumption.

To this end, we estimate Asia's LNG value chain could see investments totalling US$100bn ( Exhibit 136 ) across liquification, regasification and storage facilities as Asia's upstream production lags demand growth, power and AI-led appetite keeps surprising on the upside, while gas penetration scales at LNG prices of US$10-12/ mmbtu beyond 2027. We think these investments can deliver new import infrastructure of >150mntpa (about half of Asia's current gas demand). South Korea and Japan, followed by India and Southeast Asia, will drive the next leg of import infrastructure buildout over 2030.

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Exhibit 136: We estimate >150mntpa of new LNG infrastructure buildout in Asia, about half of Asia's current gas consumption, driving ~US$100bn of new investments LNG

160mntpa

US$99 bn

15mntpa China US$8bn

Source: Morgan Stanley Research estimates

From Glut to Tightness to Well Supplied (Eventually)

Asia is expected to be the largest beneficiary of the US shale revolution, with LNG imports from the US picking up significantly due to low prices. This is being underpinned by an expected >150mntpa of new supply (US + the Middle East) over 2026-30, more than US$270bn of US export investments and US$120bn of infrastructure investments in Asia, driving an incremental 120mntpa of LNG consumption in Asia by 2030. We now assume 2026 will see a shortfall, followed by a more balanced market in 2027-28, with 2029 and beyond ( Exhibit 137 ) likely benefiting from the full rollout of proposed capacity expansions.

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Exhibit 137: We now assume a full 2-month outage at Qatar and include the impact of 2 trains fully offline through 2028, partially offset by slower demand growth.

8

8

Source: Morgan Stanley Research estimates

Exhibit 138: Asian Power: Asian economies have meaningful Middle East LNG exposure

Source: Company data, Morgan Stanley Research

Infrastructure Momentum To Be Sustained

While in the past decade natural gas molecules were landlocked in key energy-rich regions like the US and Africa, or constrained by infrastructure connectivity as in Russia, increasingly these bottlenecks are being resolved as Asia and the US are building new gas infrastructure with over 70,000kms of pipelines, 200mntpa of LNG export facilities, and 250 LNG carriers being added, or are in various stages

of execution, into 2030 ( Exhibit 139 ). The focus on energy security, diversification of sourcing and the need to build in security buffers to limit disruptions will likely trigger a new wave of natural gas pipeline investments as most Asia countries add >15,000kms of new gasbased pipelines, increase LNG storage/regasification assets by 50-75% vs. current plans (especially in economies like India, Singapore and the Philippines) and establish meaningful storage capacities (which are negligible at present barring China and Taiwan).

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Exhibit 139: Asia: The gas infrastructure boom is connecting natural gas suppliers globally to last mile consumers

Source: GEM, Morgan Stanley Research

Playing the (Eventual) Glut

Power needs are growing at their fastest pace in a decade (especially outside of China). Natural gas is key to addressing this rising consumption, as it is not only viable when clubbed along with renewables for round-the-clock power supply, it is also quicker to construct compared to nuclear, and also less carbon-intensive than coal. Furthermore, we see a new leg of upstream investments in Asia as countries accelerate the development of domestic and near-shore energy reserves. Hence, we like gas producers and power generation companies in the US, midstream companies and upstream players in the Middle East, and local gas producers in India, China, Australia and LatAm, to play this theme. We also like companies that help import LNG, companies providing last mile consumer and industrial access as well as gas power equipment manufacturers ( Exhibit 139 ).

From this theme, we believe Mitsubishi Corp (8058.T), with high exposure to both copper & LNG, stands to benefit the most. In F3/26, production from copper mines in which the company has interests topped 300kt (on an equity ownership basis). Mitsubishi Corp has steadily increased its production volume here over time and has clearly indicated a focus on the copper business. It currently has LNG equity-production capacity of around 15mn tons per year. Going forward, through new projects and expansions of existing projects, it aims to increase this to 18mn tons per year by the early 2030s.

But We Do Anticipate Softer Near-term Gas Demand as Coal Gains

We do expect some softness in near-term gas demand as Asia contends with prices >US$15/mmbtu. Asian and European demand in March and April has already shifted lower. Countries like India are rationing gas supplies to use in priority sectors such as housing and fertilizers, while industrial clusters explore alternatives or lower operations outright. What has helped is that LNG demand falls rapidly seasonally over March and April in the northern hemisphere as heating demand wanes. Global LNG demand usually troughs in 2Q before rising again into 3Q, as peak summer cooling demand hits across SE Asia, and to a lesser extent, NE Asia.

As temperatures heat up over this summer, into what is shaping up to possibly be another record-breaking El Nino year, Asia's gas-powered fleet may be called on to meet record power demand. Current levels of LNG imports in Asia are likely not sustainable if higher gas for power demand is to be met. Meanwhile, Europe will be entering peak injection season (May-August). If Europe is able to maintain flat levels of LNG imports YoY then storage refill of ~75% is possible, however, if Asia starts to pull more aggressively on the spot LNG market, then Europe could be facing record low levels of inventory entering next winter.

Consequently, we estimate a slower accretion in Asia's LNG demand into 2030, with the region consuming an incremental 100mntpa of LNG between 2026 and 2030 (vs. earlier expectations of >120mntpa). Two thirds of this will likely be replaced by new coal gasification investments (mainly India and China), with the balance shifting to existing and new coal-fired power plants. Countries like India are actively diversifying sourcing across the US, Oman, Mozambique and new sources such as Nigeria and Congo among others, a trend which will likely continue to accelerate in 2027.

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Natural Gas: Key Beneficiaries

Exhibit 140: Gas Infrastructure Supply Chain Beneficiaries

Source: Company data, Refinitiv, Bloomberg, Morgan Stanley Research

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Fuel: A New Refinery Needed Every Year

"We have diversified the sources from where we source energy and will diversify them further. We will take our decisions and we will not hesitate to diversify" - India's Minister of Petroleum and Natural Gas.

US$8bn sioning (typically 8-9 years) and quarterly margin volatility (albeit alongside attractive and improving annual margin dynamics), we estimate the region may need to add >100mnt of new refining capacity, requiring ~US$90bn of investment by 2030 ( Exhibit 141 ), given consistent outperformance of fuel demand expectations in Asia ( Exhibit 142 ). India, Indonesia, and Vietnam will likely anchor these investments, as their consumption growth ranks among the highest globally ( Exhibit 8 ). In contrast, we expect limited capacity additions from China. >110mnt of new capacity translates to ~2-2.5mbpd of incremental refining footprint (or ~2% of global fuel consumption, ~6% of Asia's consumption) and is necessary to enhance Asia's fuel security.

A tectonic shift is underway in how the industry approaches new refining capital investment, as strong margins over the past three years have failed to attract meaningful capacity additions due to concerns around economic growth, electrification, and competition from alternative fuels. We believe this divergence from prior cycles sets up the refining industry for a potential golden age. The combination of tighter environmental standards, rising global miles traveled (autos and aviation), and improving EM growth further strengthens refining margins.

In our view, refining infrastructure represents a key bottleneck to energy security and is likely to catalyze new investment in Asia through 2030. Despite long lead times from construction to commis-

Exhibit 141: Asia to see >100mnt (2-2.5mbpd) of new refining capacity growth, catalyzing ~US$95bn of new investments

Source: Morgan Stanley Research estimates

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Refining Cycle: Stronger Beyond the Conflict

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Every energy shock, particularly one of the magnitude now emerging in Asia, structurally lifts fuel market margins. Refiners' GRMs have averaged ~20% above mid-cycle over the past three years, with refiners outperforming oil and the MSCI World Energy Index in 2024-26 ( Exhibit 143 ). Supply outages have intensified, with multiple Asian refiners cutting operating rates due to challenges in securing appropriate crude grades. While quarterly volatility remains inherent to fuel markets, we believe annual margins will run ~1.5x higher than in prior cycles ( Exhibit 145 ). It takes about eight years to build a refinery from drawing board to operation, and we expect fuel consumption over this period to rise 2x faster than supply.

Fuel Demand: Consistently Exceeding Expectations

Each year, the International Energy Agency (IEA) publishes the World Energy Outlook (WEO), which anchors broader discussions on global energy forecasts across scenarios. Notably, global oil demand has remained resilient over the past 15 years and has consistently exceeded IEA estimates ( Exhibit 142 ) despite concerns around economic growth, periods of significant price volatility, rising vehicle electrification, and the shift toward alternative fuels, such as natural gas. We expect fuel demand growth to continue to surprise through the decade, led by gasoline, diesel, and jet fuel (with some near-term demand risks), while refinery additions remain insufficient to meet this demand.

Exhibit 142: IEA estimates vs. global oil demand growth

Source: IEA, Morgan Stanley Research estimates

Twenty new refineries needed to meet demand in the time it takes to build one new refinery

The global refining sector represents >US$2.5trn in invested capital and ~US$70bn in planned new investments through 2030, by our estimates. It takes an average of eight years to bring a new refinery from drawing board to operation ( Exhibit 146 ). To put this timeframe in context, we estimate that about eight new refineries (400kbpd each) are required to meet incremental global fuel demand over this period, but only five are currently under construction, while multiple refineries are set to shut by 2030. Outside India, Brazil, and the Middle East, we have seen limited meaningful capacity additions, despite energy security concerns, reflecting the execution challenges of these large-scale investments and the extended timelines to reach breakeven ( Exhibit 147 ).

Exhibit 143: The Refinery Cycle In Perspective: Much tighter as capacity growth remains 30-40% below consumption

Source: Morgan Stanley Research (e) estimates

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Exhibit 144: Limited capacity additions vs steady demand growth to drive sustained tightness in refining markets

Source: Morgan Stanley Research (e) estimates

Exhibit 145: GRMs to remain structurally above historical averages, supported by tight refining markets

*Weighted Average: Capacity weighted average of six US major refiners and Asia Singapore complex margins

Source: Company data, Refinitiv, Morgan Stanley Research (e) estimates

Exhibit 146: Why we see a Golden Age - refining numbers in a nutshell

Source: Morgan Stanley Research estimates

Exhibit 147: Current payback period: >10 years

Source: Morgan Stanley Research estimates

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Not All Parts of Asia Are Equal on Refining Self Reliance

Oil demand has risen at nearly 2x the pace of refining capacity growth, tightening balances even as the region remains broadly selfsufficient at an aggregate level ( Exhibit 149 ). Regional refinery capacity has increased only modestly - from roughly the mid30mbpd range in the mid-2010s to about 37.7mbpd in 2024 reflecting relatively slow, incremental additions concentrated in China and India rather than a broad-based expansion across Asia. Over the same period, oil consumption growth has been significantly stronger - driven by transport, petrochemicals, and EM demand with Asia (particularly China and India) accounting for the bulk of global demand growth and continuing to expand even as OECD demand stagnates or declines ( Exhibit 148 ). The result is a tighter regional refining balance: while Asia as a whole meets much of its needs, capacity remains unevenly distributed, with surplus refining hubs such as China, India, South Korea, and Singapore exporting products, while structurally short markets - including Indonesia, Australia, the Philippines, and parts of Southeast Asia - remain reliant on imports of refined fuels.

Exhibit 148: Asian fuel demand growth has outpaced refining capacity growth by 2x over the past decade

Source: Statistical Review of World Energy, Morgan Stanley Research

Biofuels: Asia accounts for roughly 35% of global biofuel consumption, driven heavily by aggressive national blending mandates aimed at lowering fossil fuel imports, improving energy security, and reducing greenhouse gas emissions. Biofuels currently account for ~4% of Asia's primary energy consumption but we are seeing the fast growth energy consumers like India, Indonesia and Vietnam all leveraging the locally available palm oil, agriculture waste, and sugar supply chain to produce biodiesel and bio-natural gas, and also raising blending requirements in gasoline and diesel. India mandated a nationwide rollout of the E20 ethanol blend (20% ethanol in petrol) as the new national standard.

Indonesia, which is amongst the world's largest biodiesel consumers, successfully runs on a B40 mandate (40% palm oil-based biodiesel). The government is progressively rolling out a B50 mandate to further slash fossil diesel reliance. It continues to utilize a B10 mandate with a strategic push towards B15 and B20 blends to absorb local biodiesel production and capitalize on favorable palm oil economics. While conversion economics for biodiesel production need above $90/bbl oil, we believe government mandates in the transport sector and bringing in high ethanol-based fuel compliant cars are key to biodiesel doubling in the energy mix for Asia. We have also seen steady policy action in this area. China and India are both supporting smaller scale digesters for biogas production as well.

Exhibit 149: While Asia is broadly self-sufficient on fuels, we see a significant disparity between North and South Asia

Source: Statistical Review of World Energy, Morgan Stanley Research

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Supply Growth Insufficient - Closure Risks Underappreciated

As in the preceding decade, capacity additions continue to lag demand growth and will likely remain so through 2030, with slow investment cycles, project delays, and multi-year execution slippages. This is evident in recently commissioned assets in India, Malaysia, and Nigeria, which have faced significant delays as well as operational challenges during ramp-up and stabilization.

Looking ahead, we expect incremental capacity growth in India, China, and to some extent Southeast Asia through 2028. These additions will largely reflect expansions, hardware upgrades, efforts to improve product slate and crude flexibility, and downstream integration into petrochemicals. With the exception of Petronas' Pengerang integrated complex and Hindustan Petroleum's Barmer refinery, we see limited evidence of new, world-scale greenfield investments ( Exhibit 150 ). Against this backdrop, China's product exports have declined steadily, initially due to lower export quotas. China's anti-involution policies, along with similar measures in other countries, have led to ~1.5-2mbpd of refining capacity closures over the past three years.

Exhibit 150: New capacity expected to come online beset by multiple delays and slippages

Source: Company data, Morgan Stanley Research

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Exhibit 151: While retail fuel prices in Asia are typically regulated and lag Brent volatility, the Middle East conflict has forced broad-based price hikes

Source: CEIC, EPPO, PPAC, Morgan Stanley Research

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Fuels: Key Beneficiaries

Exhibit 152: Refining and Refined Products Supply Chain Beneficiaries