China’s EV Boom Threatens to Push Gasoline Demand Off a Cliff

By Investor Empires On Nov 28, 2024

(Bloomberg) — From Tesla chargers in the ancient alleys that surround Beijing’s Forbidden City to isolated highway rest stops with charging points in the western deserts, signs of the electrification of China’s transportation fleet — and the demise of gasoline — are everywhere.

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China’s sales of electric and hybrid cars reached a turning point this year in its struggle with internal combustion engines. It accounted for more than half of retail passenger vehicle sales in the four months from July, according to the China Passenger Vehicle Association, a trend that will push down appetite for transportation fuels that will have a major impact on oil. market.

The faster-than-expected uptake of electric vehicles has changed views among oil forecasters at major energy companies, banks and academics in recent months. Unlike in the United States and Europe – where peak consumption was followed by a long plateau – the decline in demand in the world’s largest crude oil importer is expected to be more pronounced. Brokerage firm CITIC Futures Co expects Chinese gasoline consumption to decline 4% to 5% annually until 2030.

“The future is coming faster in China,” said Kieran Healy, an oil analyst at the International Energy Agency in Paris. “What we are seeing now is the medium-term outlook coming in ahead of schedule, and this has implications for what Chinese and global demand growth will look like over the rest of the decade.”

For the global oil market, which has become dependent on China as a main driver of growth for most of this century, this would lead to the erosion of a basic pillar of consumption. The country accounts for nearly a fifth of global oil demand, and gasoline accounts for about a quarter of that demand. The possibility of a sharp decline in the transportation sector comes in addition to tepid industrial consumption due to slowing economic growth.

The growing popularity of electric trucks, as well as those powered by LNG, is also impacting diesel demand. Chinese fuel consumption peaked in 2019 and will decline 3% to 5% annually through 2030, UBS Securities said in a note this month.

There are still many unknowns about how China will embrace EVs, such as whether full electrification will ever be possible, and what that will mean for fuel demand. Another question mark surrounds hybrid vehicles, which can be powered by electricity or with backup gasoline engines. They have accounted for much of the sales growth over the past few years, but there is little data on how dependent drivers of these cars are on motor fuel.

The International Energy Agency sees “rampant mass-market electrification” as likely to push Chinese gasoline demand downward from 2025. This would result in an average annual decline of 2.1% from 2023 through 2030. Others, such as CITIC, retreat faster. Improvements in fuel efficiency and peak car ownership should help drive the declines, along with the uptake of electric vehicles, the brokerage said in a note in late October.

This year could be a “turning point for China’s refined oil market, as gasoline consumption reaches its peak before rapidly declining,” wrote Luo Yantou, a senior engineer at the PetroChina Planning and Engineering Institute, part of China’s largest oil company. , this month in analysis. Piece on the PetroChina website. She added that the amount of gasoline-powered cars on the road will reach its peak early next year.

Beijing planted the seeds of the shift to electric vehicles more than a decade ago, offering subsidies that gave automakers time to ramp up production and cut costs. It began to pay off in 2021 when the production of new energy vehicle shipments nearly tripled from the previous year, and is now poised to exceed the 10 million mark for the first time in 2024.

New energy vehicles make up about 10% of all cars on the road now, and are expected to exceed 20% by 2027 and could approach 100% by the 2040s, said Anders Hof, a China researcher at the Oxford Institute for Energy Studies. He said the country’s oil demand from light vehicles would fall from about 3.5 million barrels per day at present to one million by 2040.

China’s path to electrification is faster than that of other economies. In the United States, electric cars still represent only about 10% of total car sales, and BloombergNEF sharply cut its growth forecasts after the Republican Party won the elections.

Gasoline consumption there fell just 12% from its peak in 2004 until last year, according to data from the International Energy Agency. In Europe, where petrol and diesel cars are common, transport sector consumption fell just 6% from its peak in 2007.

The potential drop in gasoline demand in China due to its aggressive rollout of electric vehicles is “quite unique in some ways,” the IEA’s Healey said. “I don’t think there’s a country that has the same similar profile.”

-With assistance from Cathy Chen.