APPEC: BOCI sees China's transportation fuel demand to peak at 380 mil mt in 2025

Bank of China International Global Commodities expects China's transportation fuel demand to peak at 380 million mt in 2025 as the country accelerates energy transition to meet carbon neutrality target by 2060, Xiao Fu, Head of its Commodity Markets Strategy, said Sept. 28 at the Asia Pacific Petroleum Conference in Singapore.

"The [transportation fuel] demand will drop gradually to 250 million mt in 2050," Fu said.

Transportation fuels include gasoline, gasoil, jet fuel and bunker fuel. Demand for such fuels were below 350 million mt in 2020, according to BOCI.

With improving energy efficiency and more EV transportation, road fuel demand is expected to fall to 130 million mt in 2050 from 280 million mt in 2020, Fu said.

Road fuel mainly refers to gasoline and gasoil.

Click here for our complete APPEC 2021 coverage

President Xi Jinping has set a target to lower China's CO2 emissions per unit of GDP in 2030 by over 65% from the 2005 level, while increasing the share of non-fossil fuels in primary energy consumption to around 25%.

In the shorter term, BOCI expects a small year-on-year drop in China's oil demand in the third quarter due to Chinese government's zero-tolerance controls amid the outbreak of delta variant, but the volume would pick up moderately from Q4, 2021.

China's economy further slowed in Q3. Delta variant of coronavirus affected consumption and service sector, while property tightening put strain on fixed asset investment growth and the financial market, Fu said.

The country has shifted its fixed asset investment from the traditional ones to the new ones such as green infrastructure, including railway system, according to Fu.

China's infrastructure projects usually drive gasoil demand due to the consumption of construction fuel and transportation fuel. However, railway system uses electricity replacing gasoline, gasoil and jet fuel as the long distance transportation fuel, while EVs are going to be the alternative of gasoline cars.

Risks are skewed towards the downside for oil prices in H2 2021 and 2022, Fu said. Slow economic growth in China would dampen the growth in oil demand, while prolonged travel restrictions across the border also limits the recovery in oil demand, Fu added.

Beijing adopts zero-tolerance controls against COVID-19 to stabilize domestic living and as it prepares for the upcoming Winter Olympics in February 2022. Meanwhile, lockdowns, despite partial only, has dampened jet fuel demand significantly.

"In the remaining 2021, infrastructure investment and fiscal spending will be key [factors] to watch, to understand how much China wants to support growth," Fu said adding that BOCI estimated China's GDP growth to hit 8.4% in 2021 and to slow to 5.3% in 2022.

To summarize, China can complete the regulatory changes before December this year, after that the Chinese policy makers will focus on 2022 growth, with the policy priority gradually shifting towards sustainability and boosting confidence, especially ahead of the 20th party (China Communist Party) congress in next autumn, Fu said.