China is pushing its oil refiners to scale back production of refined petroleum products, signaling concerns over diminishing demand for traditional fuels as the country increasingly turns to petrochemical growth. The country’s top economic planner delivered the directive during the National People’s Congress on Wednesday, underscoring the need to focus more on chemical production while reducing output of fuels like gasoline and diesel.
This move comes as China’s largest refiner, Sinopec Group, reported that consumption of diesel and gasoline has reached its peak. According to Sinopec, the rising consumption of electric vehicles and a slowdown in the construction sector have led to the decline in fuel demand, shifting the focus toward petrochemicals as the primary driver of growth.
Diesel consumption, in particular, has been on the decline since 2019, with the downturn further amplified by the collapse of China’s property market, which has reduced demand for construction-related transport and machinery. The growing adoption of trucks powered by liquefied natural gas has also lessened the need for diesel.
Meanwhile, gasoline consumption likely peaked in 2023, as electric vehicle sales surged. Data from JLC International Ltd. shows a 9% drop in gasoline sales in 2024 compared to the previous year, with monthly sales averaging 13.2 million tons.
The shift away from traditional transport fuels is not only a challenge for China’s refining industry, which is grappling with overcapacity in several sectors, but it also carries global implications. Independent refiners, especially those in Shandong province, face the biggest risks. These smaller refiners account for about 20% of China’s refining capacity and are less likely to easily adapt to producing chemicals, a shift that requires significant investment in modern infrastructure.
Newer, more advanced refineries, however, are better equipped for the transition, as many are designed to process not just crude oil, but also products from US shale gas. China’s imports of American liquefied petroleum gas (LPG) surged from negligible levels in 2019 to 18 million tons in 2024, marking a significant shift in its oil demand dynamics. LPG, along with naphtha, is a key input for petrochemical production.
According to Mudit Nautiyal, senior analyst at Wood Mackenzie, the petrochemical sector is likely to remain a key driver of oil demand, despite declining consumption of transport fuels. This shift in consumption patterns poses challenges for traditional oil suppliers, as overall crude consumption in China fell by 1.2% last year, according to the National Bureau of Statistics.
The timing of this change couldn’t be worse for oil-producing nations, particularly members of OPEC+ who are planning to increase output in the face of already depressed oil prices. China’s declining crude imports, which dropped for the third consecutive year in 2024, show that the nation’s refiners can no longer be relied upon to sustain global oil demand.
As the global market adjusts to China’s evolving energy landscape, it becomes clear that traditional oil suppliers may need to seek new buyers in an increasingly competitive market.
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