This study empirically analyzes the prospects of the energy industry with the limited water resource in Xinjiang by extending an energy economic model. First, the past trends of water use in Xinjiang are analyzed. Energy utilization and industrial added value by sector are also investigated. Then, several important parameters such as economic growth rate, water saving rate, and energy saving rate are set exogenously. Especially, coal exploitation and utilization are selected as a typical case for studying energy development plan and technology choice. By keeping within the water requirement ‘red line’ and water security strategy, the acceptable speed and the future scale of the energy industry in Xinjiang are selected among several scenarios. Moreover, the interactions of economic growth, energy development, energy consumption, water requirement, and carbon dioxide emissions in Xinjiang are also analyzed. Finally, the technology choice of coal exploitation and utilization in Xinjiang with restriction of limited water resource is also suggested.