China nears peak gasoil demand as LNG-fueled heavy duty truck sales surge

China either already has, or is close to reaching peak gasoil demand as growing sales of LNG-fueled heavy-duty trucks displace conventional diesel-powered trucks, signaling fuel switching in a key area of downstream demand for petroleum fuels and emissions reductions through deeper penetration of natural gas in road transportation, according to market sources and analysts at S&P Global Commodity Insights.

The trend is already forcing Chinese refineries to cap gasoil production in 2024 as LNG-fueled trucks have resulted in the displacement of about 8% of gasoil consumption this year, on top of muted gasoil demand from property and manufacturing sectors, according to refining sources and Commodity Insights data.

Commodity Insights expects China's gasoil demand to see a marginal increase of 35,000 b/d, or 0.9%, year on year to around 3.8 million b/d in 2024, with an eventual peak in 2027, while a few analysts with state oil companies said demand has already peaked.

"LNG-fueled heavy-duty trucks have been the leading interference factor for gasoil demand this year, with stronger impact than that from the construction sector," said Kong Jinyuan, a senior specialist with PetroChina Planning & Engineering Institute (CPPEI).

Jinyuan added that China's gasoil demand peaked in 2023, and that it would decline by about 5% year on year in 2024.

Gasoil has typically been the largest component of the oil barrel, accounting for about 22% of China's refined product demand of 16.9 million b/d in 2024, according to Commodity Insights data. Around 70% of China's gasoil consumption is used in road transport, including heavy trucks to carry goods and materials for the manufacturing, construction and mining sectors.

LNG-fueled trucks that burn natural gas instead of gasoil are more environment-friendly and have been significantly eating into the market share of conventional diesel trucks, especially since LNG prices became more competitive in 2024.

Over January-May, sales of LNG-fueled heavy-duty trucks rose 127% year on year to 92,562 units, accounting for 21.4% of the country's total heavy-duty truck sales during the period, according to data from the China Association of Automobile Manufacturers.

This is more than double the sales of 40,640 units in the same period of 2023, when LNG-fueled heavy-duty trucks accounted for around 10.1% of truck sales. Meanwhile, sales of conventional heavy-duty trucks, almost all of which are gasoil-fueled, fell 9% year on year to about 32,000 units in the first five months of 2024, CAAM data showed.

Peak gasoil

CPPEI, a research unit of national oil company PetroChina, has projected the displacement of gasoil by LNG-fueled trucks to stand at 30 million mt (612,000 b/d) in 2024, up 50% from the volume displaced in 2023.

Analysts at Commodity Insights believe the LNG-fueled trucking fleet will expand its share within registered heavy trucks to 10% by end-2024 from 7.5% in end-2023, due mainly to competitively-priced LNG, availability of LNG heavy truck models, and a widening network of LNG recharging stations across the nation.

As a result, about 7.7% (roughly equal to 300,000 b/d) of China's gasoil demand will be displaced due to the rise of LNG-fueled heavy-duty trucks in 2024, according to Commodity Insights. In 2023, the displaced proportion was 6.3%.

Refiners with Sinopec, PetroChina and independent refineries in Shandong province said their gasoil inventories were high due to falling demand, and some of them have had to cut output to ease pressure on stockpiles.

In January-May, China's gasoil production fell 3.9% year on year to 4.25 million b/d, with the production yield declining to 28.7% from 29.8% during the same period last year, data from the National Bureau of Statistics showed.

"The replacement of LNG trucks against gasoil trucks has become a trend with fast expanding penetration, making it harder to sell gasoil," a gasoil trader said.

Competitive costs

"Overall lower costs [compared with gasoil] encourage LNG-fueled heavy trucks to run not only in northwestern and northern China but also in other regions," said Sijia Sun, associate director for downstream research and analysis at Commodity Insights.

"In northwestern and northern China, we expect LNG-fueled trucks' replacement ratio will be over 50% in seven provinces in 2024. Among these, the ratio in Ningxia and Xinjiang will be over 60% to 70%, making them the only two provinces with ratios over 50% in 2024," CPPEI's Jinyuan said.

Kong said LNG prices in these regions are usually lower than the rest of the country as they produce natural gas. When the price of 1 kg of LNG is lower than that of around 0.8 liters of diesel, LNG-fueled heavy-duty trucks are more economical than gasoil-fueled ones, according to industry sources.

The selling price of zero-vapor gasoil was about Yuan 7,602/mt in northwest China as of June 13, according to local information company OilChem, which translates to around Yuan 5.17 for 0.8 liters of zero-vapor gasoil.

In comparison, trucked LNG in northwest regions cost around Yuan 4,125/mt as of June 14, according to Chongqing Petroleum and Natural Gas Trading Exchange, which translates to around Yuan 4.1/kg of LNG, implying a significant price advantage for LNG trucks.

According to industry sources, an LNG-fueled heavy-duty truck usually consumes about 30-35 kg of LNG to run 100 km, which works out to savings of Yuan 48,750 ($6,713)/year assuming it runs for around 100,000-200,000 km/year.

Meanwhile, prices of the most popular LNG truck models produced by top producer FAW Jiefang Automotive were between Yuan 268,000 and Yuan 532,000, compared with Yuan 250,000-290,000 for comparable diesel trucks produced by Sinotruk, according to market sources.

When low LNG prices are sustainable, the higher purchase price of LNG-fueled trucks can be more or less compensated in one year in most cases, a Beijing-based analyst said.