China’s Growth Engine Stumbles, Turning Away from Diesel
China’s remarkable period of rapid growth appears to be waning. Economic indicators suggest a slowdown, with obstacles in the real estate sector leading to the bankruptcy of major companies like Evergrande and Shimao. This slowdown is impacting exports, which grew by just 7% in the first half of 2024, well below earlier estimates of 10%.
These challenges are further exacerbated by rising unemployment, a collapsing real estate market, and sluggish exports. Additionally, China’s imports are increasing, creating an unusual situation for the Middle Kingdom.
Beyond economic concerns, China is also grappling with air pollution, a long-standing issue that is gradually improving in certain regions through measures such as fleet renewal with LNG-powered trucks. This transition away from traditional fuels has a positive impact on air quality.
China’s Shift Away from Diesel
China’s dependence on diesel fuel is rapidly diminishing. In 2023, sales of LNG trucks are expected to surge by 300%, leading to a significant reduction in diesel consumption. This shift is driven by government incentives of approximately €20,000 for companies that replace diesel tractors with LNG-powered alternatives.
This transition has a profound impact on global diesel demand. Estimates suggest a potential decline of 2-7% in the second half of 2024, resulting in a daily reduction of around 220,000 barrels. This decline is attributed to China’s embrace of natural gas, which is cleaner than diesel.
Multiple Factors at Play
The slowdown in China’s construction sector, a major consumer of diesel, is contributing to the decline in consumption. Additionally, ongoing refinery maintenance and political instability further impact diesel production and prices.