China EV Boom May Hasten Peak Demand

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China’s electric vehicle (EV) boom is not only posing big risks to domestic oil consumption, but also hastening erosion of oil demand in transportation markets abroad through the export of price-competitive Chinese EVs (NE May27'21). Citing the growing threat from EVs, as well as mandatory fuel efficiency improvements for conventional petroleum-powered vehicles, China National Petroleum Corp. (CNPC) now predicts that domestic gasoline consumption will "peak before 2025 at around 160 million tons (3.73 million barrels per day)." Diesel consumption, meanwhile, has already been in a “plateauing period since 2015,” and peak oil demand for China -- the world's most important oil market -- may not be far off. The sluggishness in gasoline and diesel is weighing on China’s products demand, which grew at an average annual rate of 3.3% during 2016-20, or 2.6 percentage points lower than in 2010-15. Such a slowdown, says CNPC, signals that “China’s oil products consumption could be peaking or nearing a peak during the current five-year period ending 2025, thereby driving signs of peaking in total oil demand.” Chinese EV exports (including from Tesla’s Shanghai factory) also surged by nearly 250% over January-April to 54,000 units, according to data from the China Association of Automobile Manufacturers (CAAM), a trend that could accelerate the global EV revolution. CNPC’s predictions are broadly in line with forecasts by Energy intelligence, which sees a base case for Chinese peak oil demand in 2027 that could shift to 2025-26. “We see this peak roughly in 2026, in large part because gasoline and diesel demand growth rates are easing and will subsequently go into decline, offsetting ongoing growth in other oil products,” says Abhi Rajendran, head of Energy Intelligence’s Global Oil/Downstream Markets Research. Chinese oil consumption is expected to reach around 14 million b/d this year, rising to 14.3 million b/d in 2022 and peaking at close to 15 million b/d in roughly 2026, Rajendran notes. CNPC forecasts a growth rate of roughly 2% per year in the country’s oil demand over 2021-25 -- down from 5.4% during the previous five years. It predicts 2025 apparent oil demand to reach around 14.86 million b/d (740 million tons) (PIW Apr.23'21). China would remain highly dependent on imported oil, which is expected to supply 73% of its needs by 2025, up from 64.2% in 2016, notes CNPC. This year marks the start of a 15-year "EV development plan,” under which China envisages boosting market penetration to 20% of new auto sales by 2025 and 50% by 2035. China’s EV goals would translate into an oil substitution impact of 12 million tons (280,000 b/d) by 2025, according to CNPC. EV sales of 206,000 units in April were nearly triple that for the same month last year and hit a monthly high for the 11th straight month with little sign of abating, according to CAAM (NE Jan.21'21). Consultancy Wood Mackenzie expects China to breeze past its EV targets: “By 2035, China’s EV sales are seen rising fifteenfold or more to grab over 80% of new car sales.” By 2050, EVs would account for 90% of China’s new car sales, it adds. EV sales growth far outpaces that for conventional petroleum-fueled automobiles, which rose by only 8.6% year on year in April. The average January-April EV penetration rate has climbed to 8.4% of total national auto sales from 5.4% last year. Those still doubting China’s EV resolve do so at their own peril. Beijing has been ratcheting up efforts to stimulate rural demand in the form of discounts, subsidies, and free charger installations. It also extended by two years the deadline (originally 2021) by which all cash subsidies for EV purchases would cease. Even though subsides are still being lowered each year, an EV “crediting” scheme now in force is proving to be a stronger policy driver by imposing a mandatory minimum EV production ratio that rises over time, so automakers must manufacture and sell more EVs each year. Also, a minimum 80% EV purchase ratio is imposed on government departments and transport service providers when they expand or replace their fleets that run in pollution-prone zones. At end-April, the number of charging points in China totaled 1.8 million, up 42% from a year ago, according to the China EV Charging Infrastructure Promotion Alliance.

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