(Bloomberg) — From Tesla chargers in the ancient alleys around Beijing’s Forbidden City to lonely highway rest stops with charging stations in the western deserts, signs of the electrification of China’s transportation fleet — and the demise of gasoline — are everywhere.
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Chinese sales of electric vehicles and hybrids have reached a tipping point this year in their tug-of-war with combustion engines. According to the China Passenger Car Association, they have been responsible for more than half of retail passenger car sales in the four months from July, a trend that is poised to reduce demand for transportation fuels, which will have a major impact have on oil production. market.
The faster-than-expected introduction of electric cars has changed views among oil forecasters at energy companies, banks and academics in recent months. Unlike the US and Europe – where consumption peaks were followed by long plateaus – the decline in demand is expected to be greater in the world’s largest crude oil importer. Brokerage CITIC Futures Co. expects Chinese gasoline consumption to decline by 4% to 5% per year until 2030.
“The future is coming faster in China,” said Ciaran Healy, an oil analyst at the International Energy Agency in Paris. “What we are seeing now is that medium-term expectations are coming true ahead of schedule, and that has implications for the shape of Chinese and global demand growth over the rest of the decade.”
For a global oil market that has become dependent on China as its main growth engine for most of this century, this will erode a key pillar of consumption. The country accounts for almost a fifth of global oil demand, and gasoline makes up about a quarter of that. The prospect of a sharp decline in the transport sector also comes on top of tepid industrial consumption due to slowing economic growth.
The growing popularity of electric trucks, but also of trucks that run on liquefied natural gas, is also weighing on the demand for diesel. China’s consumption of the fuel peaked in 2019 and will decline 3% to 5% annually through 2030, UBS Securities Co. said. this month in a note.
There are still many uncertainties about how China’s EV rollout will progress, such as whether full electrification can ever be achieved, and what that will mean for fuel demand. Another question mark concerns plug-in hybrid vehicles, which can be powered by electricity or backup gasoline engines. They are responsible for much of the sales growth in recent years, but there is little data on the extent to which drivers of these cars are still dependent on motor fuel.
The IEA predicts that “unbridled mass market electrification” may reduce Chinese gasoline demand from 2025. That will result in an average annual decline of 2.1% between 2023 and 2030. Others, like CITIC, see a faster retreat. Improvements in fuel efficiency and a spike in car ownership would help accelerate the declines, along with electric vehicle adoption, the brokerage said in a note in late October.
This year could be a “turning point for China’s refined oil market, with gasoline consumption peaking before falling rapidly,” Luo Yantuo, a senior engineer at the PetroChina Planning & Engineering Institute, part of China’s largest oil company, wrote this month in an analysis. piece on PetroChina’s website. The number of petrol cars on the road could peak as early as next year, she said.
Beijing planted the seeds for the transition to electric cars more than a decade ago, offering subsidies that gave carmakers time to scale up production and reduce costs. It started to pay off in 2021 when production of new energy vehicles almost tripled from the previous year, and they are now poised to cross the 10 million mark for the first time in 2024.
New energy vehicles now make up about 10% of all cars on the road, and that is expected to exceed 20% by 2027 and could approach 100% by 2040, said Anders Hove, a Chinese researcher at the Oxford Institute for Energy Studies. Demand for oil from light vehicles will fall from about 3.5 million barrels per day currently to 1 million in 2040, he said.
China’s path to electrification is faster than other economies. In the US, electric cars still represent only about 10% of total car sales, and BloombergNEF has sharply scaled back its growth forecasts after the Republican election campaign.
Gasoline consumption there has fallen just 12% from its peak in 2004 through last year, according to IEA data. In Europe, where gasoline and diesel-powered cars are common, transportation consumption is down just 6% from its 2007 peak.
The likely decline in gasoline demand in China due to the aggressive rollout of electric cars “is in some ways completely unique,” the IEA’s Healy said. “I don’t think there is any country that has the same, comparable profile.”
–With help from Kathy Chen.
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