Every hyperscaler courting Southeast Asia now performs the same reassurance ritual. Ask Microsoft, Google, or AWS about the environmental cost of the data centres they are racing to build across the region, and the answer arrives pre-packaged: efficient cooling, renewable offsets, and community engagement.
Worse, tech giants have even started telling reporters that their facilities are “less thirsty” than before, part of a broader industry effort to get ahead of mounting public anger in the US over how much water AI infrastructure consumes.
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That messaging has not yet reached Gelang Patah, a town in Johor, Malaysia, where residents gathered outside a data centre construction site earlier this year holding a straightforward complaint: there was not going to be enough water left for them. It is a small protest that points to a large problem, and Southeast Asia’s AI boosters would rather not dwell on it.
Johor is the test case, and it is already straining
Johor is Southeast Asia’s fastest-growing data centre hub for a reason that has nothing to do with Malaysia’s own digital ambitions. When Singapore froze new data centre approvals between 2019 and 2022 to protect its limited land and water resources, global operators simply moved their plans across the causeway. Johor’s aggregate capacity has since surged towards 5.8 gigawatts, and the state now hosts dozens of operational facilities feeding off a water and power system that was never built for this scale of industrial demand.
The numbers are no longer abstract. A single 100-megawatt facility can consume in the region of 4 million litres of water a day for cooling alone; Johor officials have described hyperscale sites drawing roughly 200 times more water than an ordinary industrial user.
Regulators have responded by rejecting a meaningful share of new applications, raising industrial water tariffs, and telling the largest prospective tenants to wait until at least mid-2027 for guaranteed water and power connections. One estimate puts committed demand from the state’s data centre pipeline at more than 800 million litres a day, against roughly 140 million litres of infrastructure actually capable of delivering it today.
Malaysia’s federal government has all but admitted the model is unsustainable in its current form. Prime Minister Anwar Ibrahim told parliament this year that Malaysia has stopped approving new non-AI-linked data centres altogether, betting that AI-branded projects still qualify for green-lighting even as electricity demand from the sector is projected to climb to nearly a third of the country’s entire power supply by 2035, up from around seven per cent today.
Malaysia is not the exception; it is the preview
Treat Johor as a warning rather than an isolated case, because the same arithmetic is playing out across the region with fewer headlines. Indonesia’s Java-Bali grid, which carries most of the country’s data centre load, was already running near capacity before a single new AI facility came online, and the grid remains roughly 60 to 65 per cent dependent on coal, a fact that sits awkwardly against hyperscalers’ net-zero pledges. Thailand’s data centre power demand reportedly grew fourfold between 2020 and 2024 while generation capacity crept up by less than a tenth of that.
Vietnam, meanwhile, is attracting hyperscale investment on the strength of cheap land and labour even as parts of the country face weekly power cuts during summer peaks.
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A recent Bain and Standard Chartered analysis framed this plainly: the binding constraint on Southeast Asia’s AI-driven growth is not capital or ambition, it is the grid itself, and the region’s transmission and distribution networks have not kept pace with the concentrated, high-value demand that data centres represent. Roughly 35 to 45 terawatt-hours of incremental demand is expected across the region’s hubs by 2030 (Singapore, Johor, Bangkok, Greater Jakarta, Manila, and Batam) landing on infrastructure largely designed for a slower, more distributed pattern of growth.
The speculative capacity problem makes this worse
What makes the resource strain harder to justify is that a meaningful share of the demand driving it may not even be real yet. Malaysia’s Energy Commission has found that data centres were drawing less than half of their declared maximum electricity demand as of mid-2025, prompting officials to flag the likelihood of speculative applications — developers reserving grid capacity and water allocations well ahead of actual tenant commitments, effectively queue-jumping scarce resources against uncertain future need.
That is a familiar pattern from past infrastructure bubbles, and it means some of the water and power tension communities are living with today is being generated by capacity that may never be fully utilised.
This is precisely why Johor’s response, however belated, is worth taking seriously as a template rather than dismissing as friction. The state has rejected close to a third of data centre applications over sustainability shortfalls, mandated a shift towards reclaimed wastewater instead of municipal supply for new approvals, and built a dedicated water reuse programme aimed squarely at the industry.
None of that has fully closed the gap between committed capacity and available infrastructure. But it is a materially more honest starting point than the alternative most of the region has defaulted to: approve first, measure the damage later.
Southeast Asia should not import a problem it can still design around
The uncomfortable truth is that Southeast Asia has a genuine opportunity here that most of the world does not. Its AI data centre boom is still young enough that grid interconnection, water accounting standards and siting rules can be built deliberately, rather than retrofitted after the fact the way the United States is now attempting. The ASEAN Power Grid interconnection and philanthropic clean-energy pledges for surrounding communities are steps in the right direction, but they remain medium-term fixes for a strain that is already showing up in tariffs, deferred approvals and community protest today.
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Governments across the region would do well to stop treating data centre investment announcements as unambiguous economic wins and start asking the harder question Johor is now being forced to confront: what does this facility cost the people living next to it, in water, in power, and in a grid that other industries and households also depend on?
The alternative is a region that spent its AI infrastructure boom exporting the same environmental trade-offs Silicon Valley is only now starting to reckon with — except this time, with far less capacity to say no.
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