Amin Nasser, the man steering Saudi Aramco, the world’s largest oil giant, has always reserved a special spot for China among his clients. Over the past decade, the value of Saudi oil exports to China has more than tripled, soaring to a record $56 billion in 2022. In that same year, almost one in every six barrels pumped by Saudi Arabia found its way to Chinese refineries. China’s economic ascent owes a great deal to foreign oil, fueling the growth of the world’s largest car industry, extensive transportation networks, and numerous skyscrapers. Reports from the International Energy Agency (IEA) indicate that 72% of China’s total crude oil supply was imported in 2022.
Despite this seemingly unquenchable demand for crude, there are now signs indicating that China’s thirst for oil may be reaching its peak much sooner than anticipated. This revelation has sent ripples of concern through the oil market, pointing to the end of the Chinese supercycle.
- China’s Stuttering Economy: Recent reports indicate that China’s oil imports dropped by nearly 2% in 2024, marking the first decline in two decades, excluding the disruptions caused by the Covid pandemic. China’s economic slowdown, largely attributed to the ongoing property crisis, has led to a reduction in construction activities. This slump has directly impacted the demand for diesel, essential for heavy machinery, and petrochemicals used in various construction-related industries such as paint, pipes, and insulation.
- Transition to Electric Vehicles: The transition to electric vehicles (EVs) has further dampened the outlook for traditional fuel consumption. The upsurge in electric cars, coupled with the shift towards liquefied natural gas for transportation, has led to a decline in sales of petrol and diesel. This sales slump has prompted projections of a 25-40% decrease in road fuel consumption over the next decade, as claimed by China National Petroleum Corp.
As the global market watches China approach its peak oil moment, the implications are vast. Economies might need to brace for a tectonic shift as oil companies rethink their strategies and pivot towards sustainable practices. With these revelations, the pressure intensifies for the world to fulfill net-zero carbon emission targets by 2050. China’s role in the global oil market has been seminal, accounting for half of the world’s oil demand growth over the past three decades – roughly 600,000 b/d. If this rate starts to plateau, the current $500 billion annual investment in discovering new oil and gas sources could prove excessively optimistic.
As discussions regarding China’s oil demand climax unfold, contradictory viewpoints have emerged. Not everyone is convinced that China’s oil appetite is waning. Key voices, such as Meg O’Neill, Woodside’s CEO, argue that China’s economic ambitions and energy demands still have ample room for growth. OPEC, for instance, maintains a bullish outlook on China’s oil consumption, projecting a 2.5mn b/d rise from 2023 to 2050. Saudi Aramco’s Amin Nasser echoes this sentiment, underscoring the country’s vibrant solar and wind industries’ continued reliance on oil products.
With China possibly nearing its peak oil phase, the spotlight might now shift to India as the next driver of global oil consumption. Analysts predict a significant surge in oil demand in India, although it might not match the meteoric rise seen in China. The narrative of global oil consumption is bound to evolve, with emerging markets in Africa, the Middle East, and Latin America gradually navigating their unique paths. Regardless of differing opinions on China’s imminent peak oil stage, one thing remains clear – long-term demand is walking a path of decline. Producers and oil-exporting nations must prepare for this inevitable transformation and the seismic implications it entails for the global economy.
