Passenger electric vehicles are not the only alternative in the transportation sector that could potentially replace some of China’s oil needs: LNG-fueled heavy vehicles are also likely to limit diesel use in transportation, especially now that LNG is cheaper than diesel.
LNG truck sales in China have surged in recent months as global and Asian LNG prices remain well below the highs recorded at the peak of the summer 2022 energy crisis.
The surge in LNG truck shipments is expected to reduce China’s demand for oil for transportation, slowing overall oil demand growth in the world’s largest crude importer.
The prospect of abundant new LNG supplies coming into the market from 2026 onwards, especially from a major expansion project in Qatar, has analysts optimistic about an acceleration in China’s LNG-fueled truck market as rising LNG supplies could keep prices low enough to continue to replace diesel fuel.
Of course, if winter gets colder and LNG supplies stop, LNG prices could spike again, threatening to derail the LNG trucking revolution. But for now, the outlook for the LNG-powered heavy-duty vehicle market is bullish, and much brighter than it was two years ago.
LNG truck sales surge
China’s sales of LNG-fueled trucks have risen every month since 2022 compared with the same period a year earlier, with LNG vehicles accounting for about 7% of the heavy-duty truck fleet at the end of 2023, according to data compiled by BloombergNEF.
The shift to LNG-fueled trucks has been notable due to rising diesel prices last year.
So far this year, LNG truck sales in China have surged year-on-year due to new emissions standards that came into effect from July 2023 and lower LNG prices, according to OilChem data cited by Mysteel.
China’s overall apparent LNG consumption increased 35.5% between January and April, mainly due to increased demand in the transportation sector.
According to data from OilChem, LNG consumption for automobiles accounts for half of China’s total LNG consumption, or 49.97%. Demand for LNG for automobiles grew by nearly 40% in the first four months of 2024 as sales of large LNG vehicles surged on the back of falling LNG prices.
During the same period, sales of large LNG trucks in China increased 144.25 percent as both imported and domestic LNG prices were lower than gasoline prices, according to OilChem. As a result, the cost of an LNG-running truck was significantly lower than the cost of a diesel-fueled truck last year and earlier this year.
According to OilChem, there is a high positive correlation between the number of large LNG trucks owned in China and apparent LNG consumption.
“In recent years, LNG heavy trucks have emerged as a leader in the commercial vehicle segment due to their cost-effectiveness, seeing sales surge and market share grow steadily,” CIMC Enric Holdings Limited, a Chinese company that supplies LNG on-board cylinders for heavy vehicles, said earlier this year.
Citing statistical data, CIMC said sales of LNG heavy trucks increased 307% year-on-year in 2023.
China’s oil demand growth slows
CNPC’s research arm predicted earlier this year that China’s oil demand growth will weaken in the coming years due to the rise of electric vehicles and the development of the LNG-fueled truck industry.
Rising EV sales and LNG-fueled trucks will cut the country’s demand for gasoline and diesel by 10-12 percent this year alone, Lu Ruquan, director of CNPC’s Economic and Technological Research Institute, was quoted by Bloomberg as saying.
But overall oil demand will continue to trend upwards due to continued expansion of petrochemical production, Lu told Bloomberg in an interview.
According to the 2024 edition of its China Energy Outlook 2060 released late last month by the China Petroleum & Chemical Corporation (Sinopec), the world’s largest oil refinery, the company predicts that China’s oil demand will peak by 2027.
Meanwhile, China’s natural gas use is rising and expected to peak by 2040, while coal consumption, the basis of the country’s energy security, is expected to level off around 2025, according to China Petroleum & Chemical Corporation (Sinopec).
The shipping sector, where LNG is an alternative to fuel oil, could also help reduce oil use, analysts said.
“LNG fuel supplies are on the rise and this momentum is expected to continue,” Jayendu Krishna, director at Drewry Maritime Services in Singapore, told Bloomberg.
Krishna added that judging by current ship orderbooks, LNG “is likely to remain the primary alternative fuel for the foreseeable future.”
LNG prices will determine trends in oil demand for transportation
The current outlook for LNG-fueled heavy-duty vehicles is bullish due to lower LNG prices, but LNG’s new high volatility and price spikes could slow the transition to alternative fuels in trucking, analysts said.
Cold winters, outages and shortages, and fierce competition between Europe and Asia for LNG supplies could drive up global and Asian LNG prices and erode current price incentives that drive large-scale adoption of LNG-fueled trucks.
Article by Tsvetana Paraskova from Oilprice.com
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