China's shift towards lower-carbon fuels and a sluggish economy are dampening oil demand growth in the world's largest crude importer, speakers at the APPEC conference said on Monday.
China's annual demand growth has slowed from around 500,000-600,000 barrels per day (bpd) in the five years before the COVID-19 pandemic to 200,000 bpd now, said Daan Struyven, head of oil research at Goldman Sachs.
That is primarily due to the adoption of electric vehicles and the use of trucks powered by liquefied natural gas (LNG) instead of diesel, Struyven said.
"China is super focused on becoming a leader in the global (energy transition) sector by pushing the supply side, which is making the alternatives cheaper," Struyven said.
During the second quarter, China's oil demand was especially weak, pressured by lower refinery output and a slower economy.
"There's the transition component, which is moving trucks into LNG, and then there's the economic weakness," Jeff Currie, chief strategy officer of energy pathways at U.S. investment giant Carlyle Group, told the conference.
Roughly 150,000 to 200,000 barrels per day of lost demand growth is due to energy transition, while the rest is due to economic weakness and oil inventory destocking, Currie said.
"The demographics are permanent. The energy transition component is permanent. The property market should be more cyclical, by definition it has to be," Currie said in an interview with Reuters, referring to the prolonged downturn in China's real estate sector.
"Part of the weakness we're going through with China is really around deleveraging and taking the medicine now," he said.
Hong-Bing Chen, vice president of the Singapore arm of Chinese refiner Rongsheng Petrochemical, said that while China's oil consumption was weighed down by weak diesel demand, 75-80% of its future demand growth will be driven by economic growth.
"In a neutral scenario, we expect China’s gasoline demand to grow 2.5% to 3% next year, even with greater EV penetration," Chen told an APPEC panel.
Gasoline demand accounts for about one-fifth of China's oil consumption.
This year, concerns about weak oil demand in China, as well as plans by OPEC+ producers to unwind supply cuts, have exerted downward pressure on oil prices, which recently hit more than one-year lows.
"Despite a fourth-quarter 2024 bump, Chinese liquids demand growth is in lower gear – and will stay that way," said Jim Burkhard, vice president, research, at S&P Global Commodity Insights.
