China LNG trucking surge displaces diesel

Low gas prices in China are fuelling a rapid switch from diesel to LNG for trucking and long-distance transport as the country seeks to reduce oil imports.?

Significant increases in domestic gas production in recent years have been coupled with strong pipeline gas volumes from Russia, Turkmenistan and Myanmar. As a result, Chinese trucking companies are increasingly choosing LNG over diesel, driven by both economic and strategic factors.

This transition aligns with the Chinese government’s broader strategic goals. And has been backed by heavy investment in LNG infrastructure.

Price differential

Data from Beijing-based research firm CV World shows that LNG trucks accounted for 42% of China’s heavy-duty truck sales in the first eight months of 2024, a sharp rise from just 9% in 2022.

In northern regions, where LNG infrastructure is well-established, diesel trucks are now a rare sight and analysts at investment bank CICC estimate that LNG trucks could displace around 9.2 million tonnes of diesel demand this year, marking a significant reduction in China’s overall diesel consumption.

This shift has been driven in large part by a steep price differential, with LNG about 23% cheaper than diesel in many locations. Currently, China pays around $8 per million British thermal units (MMBtu) for pipelined gas, significantly less than the cost of importing seaborne LNG.

Peak diesel

Looking ahead, the growth of LNG trucking, along with the rise of electric vehicles, is expected to dampen China’s demand for diesel and possibly accelerate the country’s overall peak oil timeline.

The International Energy Agency (IEA) now projects that China’s diesel demand will plateau as soon as next year, and some domestic analysts believe the peak may have already been reached, as diesel usage dropped by nearly 6% in July compared to the same month last year.

Challenges remain, however, as China's economy faces headwinds from its ongoing property crisis and structural weaknesses, which could hinder the pace of LNG adoption in trucking. The upfront capital investment required for LNG vehicles and infrastructure can be a significant barrier, especially for smaller operators, especially as global demand for LNG hits prices.