The accelerated shift in road transport in China from diesel to LNG will have an impact on the oil market

The accelerated shift in road transport in China from diesel to LNG will have an impact on the oil market
The accelerated shift in road transport in China from diesel to LNG will have an impact on the oil market

This is a development whose importance has not been fully appreciated. Sales in China of trucks running on liquefied natural gas (LNG) have soared in recent months and could ultimately impact oil demand from the world’s largest importer. One in three new heavy goods vehicles marketed in China last April ran on LNG compared to one in eight a year earlier. China’s sales of trucks using LNG as fuel have been increasing steadily every month since 2022. According to data compiled by BloombergNEF, these vehicles accounted for 7% of the country’s heavy-duty fleet at the end of last year. And that’s just the beginning

According to the Chinese company CIMC Enric, which manufactures LNG engines, sales of heavy goods vehicles running on this fuel increased by 307% in 2023. And they continue to grow. During the first four months of the year, they increased by another 144.25%. There could be more than 900,000 vehicles of this type on Chinese roads by the end of the year.

Political and environmental pressures

This is due to several factors. First, new emissions standards that have come into force since July 2023 which favor engines running on gas, particularly in large metropolises. This also explains why several provinces which have made air quality one of their priorities are increasing financial incentives to encourage the purchase of trucks using this fuel.

To this must be added the fact that the costs of LNG have fallen significantly since the energy crisis of 2022 and have made it a fuel that has become very competitive with diesel for road transport. The cost of operating a large LNG truck in China has today become quite significantly lower than its equivalent using diesel. And China’s LNG supply prospects are ensured in particular by the signing of several very long-term supply contracts (27 years!) with Qatar.

An impact with electric cars on oil consumption

Natural gas has become a very attractive fuel because “ better energy efficiency, greener emissions and political support for it from several provinces in China which prefer it to diesel », summarizes Shiqing Xia, consultant at Wood Mackenzie. “Given government policies to limit pollution and move freight away from diesel, LNG road transport is expected to remain an important option“, adds Michal Meidan, head of the China energy program at the Oxford Institute for Energy Studies.

The development is spectacular when we look at LNG consumption in China. It increased by 35.5% between January and April this year. And LNG demand for vehicles accounted for half, exactly 49.97%, of total consumption.

If LNG continues to expand at such a rate in road transportation, it could ultimately reduce China’s oil demand for transportation and even slow global growth in barrel demand. Remember that China is by far the world’s largest importer of black gold.

Increased sales of electric vehicles and LNG trucks are expected to reduce China’s demand for gasoline and diesel by 10% to 12% this year, according to Lu Ruquan, president of the Research Institute of China National Petroleum Corp. However, total oil demand will continue to increase, notably due to strong growth in the petrochemical sector.

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