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China's tighter pollution controls on diesel trucks to impact fuel demand

Singapore — China has published a new battle plan in its fight against air pollution that tightens controls on its diesel-powered trucking fleet, calls for stringent diesel fuel quality standards and encourages the use of alternatives like railways and cleaner trucking fuels in heavy transportation.

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The measures are likely to crimp China's overall gasoil consumption at a time when demand growth for the fuel has already shrunk due to slower industrial activity, leading to surplus gasoil inventories and growing exports of the fuel.

On Friday, China's Ministry of Ecology and Environment, the National Development and Reform Commission and nine other government bodies issued a policy document to implement previously announced plans like the Blue Sky policy of the State Council and the action plan to strengthen emission controls of diesel trucks.

Some of the key measures in the latest plan include increasing the freight volume of railways and waterways, while reducing long-distance trucking volumes, promoting the use of new energy vehicles and significantly improving the environmental compliance rate of diesel trucks by 2020.

It also aims to phase out over 1 million gasoil trucks that are following the old National Phase III or Euro 3 emission standards by 2020 in the northern China region surrounding Beijing and the coal producing region in northwest China's Fenwei Plains.

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"[W]e expect the implementation and assessment to be strict," Wood Mackenzie analyst Lei Yujiao said Tuesday, adding that the latest guidelines clarify the targets, measures and plans announced earlier, highlighting the government's commitment.

Once the highly polluting trucks are replaced, the move is irreversible, and the impact won't be one-off, Lei said, adding that the plan will be sustainable in the medium term.

Truck transportation contributes to about 57% of China's total diesel demand and if the guidelines are well-implemented, including replacing old trucks and increasing the share of rail and waterways, they will put over 3% of the country's diesel/gasoil demand at risk, he added.

"China is not replacing old gasoil-fueled trucks with new gasoil-fuel trucks, but with other transportation modes," a Beijing-based analyst, said separately.

China's apparent demand for gasoil was at around 3.94 million b/d in 2018, accounting for 30% of the country's total oil apparent demand, data from S&P Global Platts Analytics showed.

-- Oceana Zhou, newsdesk@spglobal.com

-- Edited by James Leech, newsdesk@spglobal.com