Our analysts Tim Chan and Mayank Maheshwari discuss how nuclear
power and natural gas are reshaping Asia’s evolving energy mix,
and what these trends mean for sustainability and the future of
energy.
Read more insights from Morgan Stanley.
----- Transcript -----
Tim Chan: Welcome to Thoughts on the Market. I'm
Tim Chan, Morgan Stanley's Head of Asia Sustainability Research.
Mayank Maheshwari: And I am Mayank Maheshwari,
the Energy Analyst for India and Southeast Asia.
Tim Chan: Today – a major shift in global
energy. We are talking about nuclear power, gas adoption, and
what the future holds.
It's Monday, August 18th at 8am in Hong Kong.
Mayank Maheshwari: And it's 8am in Singapore.
Tim Chan: Nuclear power is no longer niche; it’s
a megatrend. It was once seen as controversial and capital
intensive. But now nuclear power is stepping into the
spotlight—not just for decarbonization, but for energy
security.
Global investment projections in this sector are now topping more
than $2 trillion by 2050. This is fueled by a growing appetite
from major tech companies for clean, reliable 24/7 energy. More
specifically, Asia is emerging as the epicenter of capacity
growth, and that’s where your coverage comes in, Mayank.
With the rising consumption of electricity, how does nuclear
energy adoption stack up in your universe?
Mayank Maheshwari: Tim, it's a fascinating world
on power right now that we are seeing. Now the tight global power
markets perspective is key on why there is so much investor and
policymaker attention to nuclear power.
Nuclear fuels accounted for about a tenth of the power units
produced globally. However, they are almost a fifth of the global
clean power generation. Now, power consumption is at another
tripping point, and this is after tripling since 1980s. To give
you a perspective, Tim, 25 trillion units of power were consumed
worldwide last year, and we see this growing rapidly at a 25
percent pace in the next five years or so. And if you look at
consumption growth outside of China, it's even faster at 2.5x for
the rest of the decade when compared to the last decade.
Now policy makers need energy security and hence, nuclear is
getting a lot more attention. In Asia, while China, Korea, and
Japan have been using nuclear energy to power the economy, the
rest of Asia, it has been more an ambition – with India being the
only country making progress last decade. Southeast Asia still
has a lot more coal, and nuclear remains an ambition as
technology acceptance by public and regulatory framework remains
a key handicap. We do, however, see policy makers in Singapore,
Vietnam, and Malaysia looking at nuclear fuels more seriously
now, with SMRs also being discussed.
Tim Chan: That is a really interesting
perspective, Mayank. So, you have been bullish on the Asia gas
adoption story. So, how do you think gas and nuclear will
intersect in this region?
Mayank Maheshwari: I think nuclear and natural
gas, like all of the fuel stem, will complement each other.
However, the long gestation to put nuclear capacity makes gas a
viable alternative for energy security. As I was telling you
earlier, policy makers are definitely focusing on it. As you
know, the last big increase in focus in nuclear fuels also
happened in the 1970s oil shock, again when energy security came
into play.
Global natural gas consumption has more than doubled in the last
three decades, and it's set to surprise again with AsiaPac’s
consumption pretty much set to rise at twice the pace versus what
right now expectations are by the street. In this age of
electrification and AI adoption, natural gas is definitely
emerging as a dependable and an affordable fuel of the future to
power everything from automobiles to humanoids, biogenetics, to
AI data centers, and even semiconductor production, which is
getting so much focus nowadays.
We expect global consumption to rise again after not growing this
decade for natural gas. As Asia's natural gas adoption rises and
grows at 5 percent CAGR 2024-2030; with consumption for gas
surprising in China, India, and Japan. So, all the large
economies are seeing this big increases, especially versus
expectations.
The region will consume 70 percent of the globally traded natural
gas by 2030. So that's how important Asia will be for the world.
And while global gas glut is well flagged, especially coming out
of the U.S., Asia's ability to absorb this glut is not very well
appreciated.
Tim, having said that, nuclear energy is clearly getting more
interest globally and is often debated in sustainability circles.
How do you see its role evolving in sustainability frameworks as
well as green taxonomies?
Tim Chan: On sustainability, one thing to talk
about is exclusion. That is really important for many sustainable
sustainability investors. And when it comes to exclusion for
nuclear power, only 2.3 percent of global AUM now exclude nuclear
power. And then, that percentage is lower than alcohol, military
contracting and gambling. And the exclusion rate is also
different dependent on the region. Right now, European investors
have the highest exclusion rate but have reduced the nuclear
exclusion from 10.9 percent to 8.4 percent as of December last
year. And North American and Asian exclusion rates are very, very
low. Just 0.3 percent and 0.6 percent respectively.
So, this exclusion in North America and Asia are minimal. The
World Bank has also lifted, its decades long ban on financing
nuclear project, which is important because World Bank can
provide capital to fund the early stage of nuclear plant project
or construction.
And finally, on green finance. The EU, China and Japan have
incorporated the nuclear power into their green taxonomies. So
that means in some circumstances, nuclear project can be
considered as green.
Mayank Maheshwari: Now we have talked about AI
and its need for power on this show. Nuclear power has a
significant role to play in that equation, with hyperscalers
paying premium for nuclear power. How does this support the
investment case for nuclear utilities?
Tim Chan: Yeah, so that depends on the region;
and then different region we have different dilemmas. So, let's
talk about U.S. first. In the U.S. we are seeing nuclear power is
commanding a premium of approximately around $30-$50 per megawatt
hour – above the market rate. So, when it comes to this price
premium, we do think that will support the nuclear utilities in
the U.S. And then in the report we highlighted a few names that
we believe the current stock price haven't really priced in this
premium in the market.
And then for other regions, it depends on the region as well. So,
Mayank, you have talked about Southeast Asia. Southeast Asia
right now, given the lack of nuclear pipeline and then also the
favorable economies of gas, we are not seeing that sort of
premium yet in the Southeast Asia. We are also not seeing that
premium in the Europe and in China as well, given that right now
this sort of premium is mainly a U.S. exclusive situation. So
dependent on the region, we are seeing different opportunities
for nuclear utilities when it comes to the price premium.
Mayank Maheshwari: Definitely Tim, I think the
price premiums are dependent on how tight these power markets in
each of the geographies are. But like, how does nuclear fit into
broader energy mix alongside renewables and natural gas for you?
Tim Chan: So, all these are really important.
For nuclear power, investors really appreciate the clean and
reliable, and for the 24x7 nature of the energy supply to support
their operations and sustainability goals. And then nuclear is
also important to bring the power additionality, which means
nuclear is bringing truly new energy generation rather than
simply utilizing a system or already planned capacity. We are
seeing that sort of additionality in the new nuclear project and
also the SMR in future as well.
So, for natural gas, that is also important. As Mayank you have
mentioned, natural gas money adds as a bridge field to provide
flexibility to the grid. And then in the U.S., it is currently
the primary near-term solution for powering AI and data center to
increase the electricity supply due to its speed to the market
and reliability. And natural gas is suspected to meet immediate
demand, while longer term solutions like nuclear projects and
also SMR are developed.
And finally, renewable energy is also important. It represents
the fastest growing and increasingly cost competitive energy
source. They also dominate the new capacity additions as well.
But for renewable energy, it also requires complimentary
technology such as battery ESS to adjust intermittency issues.
So, Mayank we have talked so much about nuclear, and back to you
on natural gas. You are really bullish on natural gas. So how and
where do you think are the best way to play it?
Mayank Maheshwari: As you were kind of talking
about the intersection and diffusion between nuclear, natural gas
and the renewable markets, what you're seeing is that our
bullishness on consumption of natural gas is basically all about
how this diffusion plays out. Consumption on natural gas will
rise much quicker than most fuels for the rest of the decade, if
you think about numbers – making it more than just a transition
fuel.
Hence, Morgan Stanley research has a list of 75 equities globally
to play the thematic of this diffusion, and it is happening in
the power markets. These equities are part of the natural gas
adoption and the powering AI thematic as well. So, these include
the equipment producers on power, the gas pipeline players who
are basically supporting the supply of natural gas to some of
these pipelines. Hybrid power generation companies which have a
good mix of renewables, natural gas, a bit of nuclear sometimes.
And infrastructure providers for energy security.
So, all these 75 stocks are effective playing at the intersection
of all these three thematics that we are talking about as Morgan
Stanley research. It is clear that nuclear renaissance, Tim,
isn't just about reactors. It's about rethinking energy systems,
sustainability, and geopolitics.
Tim Chan: Yes, and the last decade will be
defined by how we balance ambition with execution. Nuclear
together with gas and renewables will be central to Asia's energy
future. Mayank, thanks for taking the time to talk,
Mayank Maheshwari: Great speaking to you, Tim.
Tim Chan: And thanks for listening. If you enjoy
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listen and share the podcast with a friend or colleague today.
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