By Tsvetana Paraskova – Apr 03, 2025, 7:00 PM CDT
- Transport fuel demand in China is peaking, with electric vehicles and LNG-powered trucks increasingly displacing gasoline and diesel.
- China’s state energy giants — PetroChina, Sinopec, and CNOOC — are ramping up domestic natural gas exploration and production.
- Government-backed incentives and subsidies are supporting this gas push.
China’s biggest state-held energy firms are following the demand trends in the world’s top crude oil and natural gas importer.
After decades of growth, Chinese demand for transport fuels is peaking as electric vehicles and LNG-powered trucks are seizing market share from gasoline and diesel. But natural gas demand is only going up, and it’s expected to continue growing for decades.
Tasked by the authorities to boost domestic production of oil and gas, all three state majors, PetroChina, Sinopec, and CNOOC, are increasingly betting on natural gas exploration and production. They aren’t ditching oil—and raise exploration and development of oilfields, too. But the energy giants admit that the so-called new energy vehicles – the ones not running on refined petroleum products – are eating up into domestic fuel demand, which has already peaked.
Peak Transport Fuel Demand
China National Petroleum Corporation (CNPC), the controlling shareholder of PetroChina, acknowledged as much in its outlook unveiled this week.
While stronger economic growth than previously expected and booming demand for petrochemicals will lift China’s oil demand by 1.1% this year, consumption of transportation fuels has peaked, CNPC’s think tank Economics and Technology Research Institute (ETRI) said.
Like CNPC, the International Energy Agency (IEA) also believes that oil demand for fuels in China has reached a plateau.
“With the overall Chinese economy pivoting from manufacturing to services-based growth and as the adoption of electric vehicles expands in the transport sector, the data strongly suggest that the combustion uses of petroleum fuel in China have already reached a plateau and that the potential for future growth may be very limited,” IEA market analysts said last month.
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Last year, China’s consumption of oil-based fuels – including gasoline, jet fuel, and diesel – was 2.5% below 2021 levels and only narrowly above those in 2019, according to the IEA’s estimates.
The weaker fuel demand cut into the profits of Sinopec, which last week reported a 16.8% decline in its 2024 net profit, attributed to lower oil prices and the penetration of electric vehicles.
“In 2024, international crude oil price fluctuated with downward trends, domestic new energy substitution in traffic industry accelerated, new production capacity in the chemical market continued to release, and the gross profit of chemicals narrowed significantly,” Sinopec said.
Sinopec, which is Asia’s largest refiner, said that the refining business faced “complex market environment” in 2024, and it strived to offset the impact of factors “including new energy and vehicle LNG substitution.”
“The domestic demand for natural gas grew rapidly, while that for refined oil products domestically declined slightly,” Sinopec noted.
State Majors Boost Natural Gas Output More than Crude Production
The firm raised natural gas production more than it grew crude output in 2024, with crude inching up by 0.9% year-on-year and natural gas rising by 4.7%.
Significant breakthroughs were made in the exploration of ultra-deep shale gas in the Sichuan Basin last year, Sinopec said.
PetroChina also noted in its 2024 results release that new energy vehicles, including LNG heavy trucks, “created substitution effects on consumption pattern of domestic refined oil products.”
Natural gas consumption in China increased by 8% last year, while crude processing volumes at refineries fell by 1.6%, the company said.
PetroChina raised its domestic natural gas output by 4.6% and increased crude production by 2.5% in 2024, and pledged to focus on shale oil and gas exploration and development this year.
CNOOC, for its part, reported an 11.4% rise in net profit for 2024, as record oil and gas production offset weaker energy commodity prices.
Looking ahead, CNOOC will continue to increase reserves and production, chairman Wang Dongjin said.
CNOOC sees huge growth potential in natural gas.
“Buyers will take all the gas we produce — there’s tremendous growth potential,” President Yan Hongtao said at the earnings briefing, as carried by Bloomberg.
Shale Gas Drilling
All three state majors are looking to boost natural gas production and are venturing in deeper offshore fields and in deeper onshore shale formations.
In recent years, China’s oil and gas giants have intensified ultra-deep drilling, both onshore and offshore, looking to unlock more domestic oil and gas resources to help meet its demand for hydrocarbons and reduce dependence on imports.
China has substantial shale resources, especially in natural gas, but extracting them is more challenging than in the United States, for example, due to the complex geology of the local shale formations.
Even so, shale exploration is an important part of China’s push to boost its reliance on domestic oil and gas production in a bid to reduce its significant exposure to imported hydrocarbon resources.
China is backing shale gas exploration with subsidies and incentives.
Last month, the Chinese Ministry of Finance extended to 2029 a subsidy fund to incentivize shale gas and coal bed methane drilling, which was originally created in 2020.
The LNG market participants should be closely monitoring China’s push for more domestic natural gas production and ventures into deeper and more complex shale geological formations. Continued growth in domestic gas output could slow down Chinese LNG import growth.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana Paraskova
Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.
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