China's oil demand seen peaking in 2025 as EVs, high-speed rails take over

China will no longer be the growth driver of global crude demand, say analysts

Chinese travellers forgoing the open road in favour of trains while making the switch to electric cars means the top driver of the world’s oil demand may soon step on the brakes, according to Morgan Stanley.

Oil consumption in China will peak in 2025, five to eight years earlier than market consensus, analysts including Andy Meng wrote in a report. While most countries moving up the economic ladder have shown continued growth in oil demand from increased driving, China will probably follow a unique model where electric vehicles and high-speed rail travel would drastically reduce gasoline consumption, the bank said.

If the theory plays out, it could signal a huge shift for the oil market, which has relied on China for more than a third of global demand growth since the turn of the millennium. Prospects for a demand slowdown in the top energy user have also been raised by energy giants including BP Plc, which sees suppliers increasingly focused on India.

“China will no longer be the growth driver of global crude demand,” Meng said in the March 5 report. “We believe the refiners and petroleum stations are the largest potential losers, while the battery companies are likely to become the key winners.”

To be sure, some of the industry’s top prognosticators expect the country’s oil demand to keep growing for years, albeit at a slower pace. The International Energy Agency sees China crude consumption expanding through 2040, while the nation’s largest energy producer China National Petroleum Corp. has forecast that gasoline use will peak five years before oil demand does in 2030.

Disruptive Force

China’s electric vehicle penetration will reach 6.4 per cent by the end of the decade and keep rising to 80 per cent by 2040, according to Morgan Stanley, adding that an aggressive push by local battery companies into technology innovation may speed up that timeline.

Meanwhile, the country is seeing solid growth in high-speed rail ridership, driven by a well-developed network and severe traffic congestion. Highways’ share of passenger turnover fell to 27 per cent last year from 55 per cent in 2012. In the U.S., the figure was 87 per cent last year, according to Morgan Stanley.

Electric vehicles and high-speed rail are “a disruptive force on China oil demand,” the analysts said. “This pattern has been ignored by most investors in developed markets as there is no such experience from any precedent.”

To contact the reporter on this story: Dan Murtaugh in Singapore at dmurtaugh@bloomberg.net

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