Peak oil demand is coming to China; this message has been conveyed repeatedly by forecasters such as Wood Mackenzie and by China's very own state oil majors.
Given China's current importance for oil markets and the importance of oil for its economy, the implications of peak demand could be substantial. And they will not necessarily be to the liking of transition fans.
Earlier this year, Sinopec and PetroChina saw gasoline demand in China peaking in 2025, driven down by rising sales of electric vehicles. The IEA and Rystad Energy saw the peak in 2024. From there, peak oil demand is only a short step.
But last month, the head of CNOOC went further, suggesting that oil demand in China may have already peaked this year. This is, of course, only a suggestion based on the expected slowdown in demand during the second half of the year, but it does indicate that the industry is preparing for the peak.
Everyone forecasting peak oil demand for China attributes it to rising EV sales, which accounted for 37% of all new car sales in August. That was up from 28% for the first five months of the year, and that, in turn, was up from 21% for the first five months of 2022.
Clearly, EV sales are on the rise and may well continue on this trajectory, undermining demand for crude oil. This, in turn, would undermine global demand for crude, which for years has been seen as driven by China as the biggest importer of the commodity. Related: Oil Moves Higher On EIA Inventory Draw
The assumption, however, that EV sales in China could continue expanding until they reach 100% may not be justified. In July, the head of Volkswagen's operations in China, Ralf Brandstaetter, said the local EV market was showing signs of "overheating". There were too many players on the market with too many cars on offer, he warned, suggesting it was time for consolidation.
ING early this year forecast a slowdown in passenger car sales in general for China, including for EVs-because subsidies for EVs were being phased out after they drove the sharp increase in sales over the last two years.
Peak oil demand caused by EV sales, then, is far from a certainty, as most things in life. Yet, assuming it happens, China will increase its coal consumption, prompting an interesting question about the transition: if you replace high oil consumption with high coal consumption, is it even a transition?
The increase in coal consumption will be necessary to power all those EVs that forecasters see coming to Chinese roads and homes in the next few years. Wind and solar will grow, too, but wind and solar remain constrained by their very nature, so something dispatchable would need to be available, too: coal, gas, and nuclear.
According to some analysts, the peak oil demand caused by the EV scenario would enhance China's self-sufficiency in energy. The FT quoted the Oxford Institute of Energy's head of China research, Michal Meidan, as saying, "From an energy system perspective, China is probably self-sufficient for 85 per cent of its energy needs."
With EV sales on the rise and oil demand on the decline, "they gradually reduce reliance on gasoline and imported oil. That's where coal and renewables come in." And China has a lot of coal even though it also imports significant volumes.
Refiners, meanwhile, are preparing for the peak demand scenario by investing massively in petrochemicals production capacity. While most forecasters predict peak oil demand, no one has predicted peak petrochemicals demand - on the contrary, predictions are for petrochemicals turning into the growth engine for oil after peak fuel demand.
By Charles Kennedy for Oilprice.com