Electric shock: China's electric car boom threatens global oil market
While Europe was proclaiming the values of the energy transition, it quietly took place in China. At least one of its key objectives - mass introduction of electric vehicles into operation - has been accomplished. In 2024, the number of new electric cars sold on the country's market exceeded the number of internal combustion engine vehicles. This could, in theory, threaten to have unambiguous implications for the global oil market. Nevertheless, although the growth of demand in China will slow down, at least until the end of the decade, we should not expect a decline in consumption of black gold in the country, according to Izvestia's interlocutors.
Half of the market
The growth of oil consumption in the world in recent years has been largely driven by China. Demand in this country has grown by two thirds since 2012 - from 10 million to 16.6 million barrels per day. No other country has increased consumption in this way.
The picture is the same over a longer time horizon. Between 2000 and 2023, China accounted for half of the global growth in black gold consumption. Given the significant increase in production during this period (primarily due to the U.S. shale oil, as well as Russia, which increased production by almost one and a half times), it was China that allowed to keep prices at a high level.
Things started to change in the 2020s. China has long subsidized the production of electric cars, but more importantly, it has created a serious infrastructure for them. In addition, the simpler design of EVs (just a battery instead of a complex internal combustion engine, which requires higher technological competencies to produce) played an important role. This allowed Chinese manufacturers to compete confidently in an entirely new industry.
In 2024, the process accelerated dramatically and became globally visible. Electric vehicle sales grew month after month, with the pace accelerating. In July, a landmark event occurred: the number of electric vehicles sold exceeded the number of internal combustion engine vehicles for the first time. Electric vehicles remained at this level - around 50% of all domestic sales - in the following months, with total sales volumes growing steadily. In November, it reached a record 1.4 million units, 6% more than in October and 47% higher than in November 2023. In total, just over 2.8 million cars were sold in the country (together with exports, Chinese car sales totaled 3.3 million).
To be fair, not all of the cars sold are pure battery electric vehicles. About 40% of all EVs are hybrids, so to a large extent they add to fuel demand. Nevertheless, the trend is clear. Norway, where already more than 90% of new cars on the market are electric cars, is still a long way off, but it could be enough to significantly reduce oil demand.
And the effect is already noticeable. In terms of imports of black gold, this year has not been characterized by impressive results. In October, for example, the country imported 10.53 million barrels of oil per day, 9% below the same month in 2023. And even before that, investment bank Goldman Sachs estimated that oil demand in China will grow by only 200 thousand barrels per day by the end of the year, compared to 500 thousand barrels in 2023. November equaled the statistics a bit: oil imports reached 11.81mn b/d, showing growth for the first time to the same period of the previous year, and by 14% at once. For the 11 months combined, the country's liquid hydrocarbon imports fell by about 2.1%. It remains to wait for the December results, but even if they are successful, it is unlikely that we will have to talk about growth for the whole year.
The penetration of electric vehicles in China has become almost the highest in the world, at least among major economies, thanks to a number of stimulus measures and the development of relevant infrastructure. It is worth noting that to a large extent the electric vehicle fleet is growing at the expense of cabs and other public transportation.
There will be no recession - yet
Despite this, it is premature to talk about a decline in oil demand in the PRC - at least in the absence of a full-blown economic crisis. The demand growth trend looks very similar to that seen before the pandemic. Even in the transportation industry, an increase in consumption is still possible. For example, fleet utilization is still lower than it was before 2020. It also has room to grow in terms of net numbers. In the PRC, there are 232 vehicles of all types per 1,000 people, putting China between Thailand and Turkey. That said, the PRC is ahead of both in terms of economic growth. American motorization rates are unlikely, but there is definitely still room for growth, and that "lifts all boats." At the same time, the growth rate of hybrid sales is higher than that of battery electric vehicles.
More importantly, demand will be driven by petrochemicals, which could single-handedly add 3 million barrels per day by 2030. The small decline expected in the use of petroleum products for transportation purposes will be tiny compared to this growth. The bottom line is that even for China, on a five- to seven-year horizon, the oil economy will feel relatively good.
According to Maria Belova, director of research at Implements, China's transportation segment accounted for half of domestic oil demand in 2023:
- According to Sinopec's long-term energy outlook for China, the country's consumption of motor fuels will grow until 2025, but a sharp decline will follow, precisely due to the electrification of transportation. On a forward-looking basis, China's oil consumption is generally expected to plateau in 2025-2026 and decline in 2029-2030. Until the end of this decade, the country's oil demand will be supported by the petrochemical industry.
OPEC forecasts growth
At the same time, Tamara Safonova, associate professor at the Institute of Economics, Mathematics and Information Technologies of the Presidential Academy, believes that the statistics of new sales does not mean that the number of internal combustion engine cars in use has sharply decreased.
- The number of electric cars in the PRC as of July 2024 amounted to 25 million, which is 6% of the total 440 million vehicles in use. In addition, the growing demand for electric vehicles is also leading to an increase in global electricity consumption, and combined with industrial growth and strong global mining activity, many regions are becoming energy-deficient. In general, consumers in many countries are leaning towards hybrid cars, which provide a guarantee of reliability and longer transportation, which implies continued growth in demand for motor fuel," the expert comments.
She added that, according to the latest OPEC report, demand for oil in 2025 will continue to grow and will reach a record level of 105.3 million barrels per day. The biggest driver of hydrocarbon demand will be the development of petrochemicals and fossil fuel-fired power generation.
Marsel Salikhov, President of the Institute of Energy and Finance, predicts that by 2030 the share of electric cars in the structure of the passenger car fleet of the People's Republic of China will amount to 30%.
- The growth of electric vehicles and gas motor fueled trucks (GMT) is also slowing down the growth of demand for petroleum motor fuels in China. In the first half of 2024, 500,000 trucks were sold in the PRC, including 100,000 CNG-powered trucks. And stricter restrictions on fuel consumption by trucks came into effect on January 1. This will support the growth of the share of GMT and "take a bite" of 700 thousand barrels per day of potential demand for diesel fuel by 2029. China's oil demand growth will continue in the coming years, but will slow down significantly, to 0.3 mln bpd," the interlocutor believes.
He added that India is becoming a "locomotive" of oil demand growth, but will not replace China:
- 'Unlike China, where demand growth has slowed significantly, India will maintain a stable demand growth of 0.2-0.3 million bpd in 2024-2025. Although the electric vehicle market is also expanding in India (sales of 100,000 units/year), the country will maintain a stable growth rate in demand for gasoline and diesel in the coming years due to low overall motorization rates, which creates strong demand for internal combustion engine vehicles as well. In 2024, India has 31 cars per 1,000 people (excluding two-wheelers and three-wheelers) compared to 183 in China.
Переведено сервисом «Яндекс Переводчик»
