China's rapid electricification is hurting oil producers, says Russell

O Ver-estimating China's desire for crude oil has played a role in the oil markets, particularly by OPEC. This theme is likely to continue into future years.

According to the latest World Energy Outlook released by the International Energy Agency on Wednesday, "electric mobility", or the increasing use of electricity to replace fossil fuels in transportation, is "causing oil producers to lose out,"

China is the leader in the transition to electric cars, having already reached 50% of new sales. The rest of the globe is expected to reach this level by 2030.

According to this forecast (which is what the IEA calls the Stated Policies Scenario, or STEPS), the growth of EVs will displace around 6,000,000 barrels of crude oil per day.

China becoming the model for renewable energy and electrification rather than the current outlier is the main risk to the long-term bullish outlook for oil demand that oil producers like the Organization of the Petroleum Exporting Countries continue to be committed.

China accounted for two thirds of the global growth in oil demand between 2010 and 2023, as well as one third of the growth in natural gas demand.

Beijing appears to be willing to use coal, a dirty fossil fuel, to meet its electrification goals, even though coal's role in the energy mix has declined.

The IEA reported that China has added 50 gigawatts to its coal-fired power capacity by 2023. It also said it had 260 GW solar and 75 GW wind.

The IEA expects China to reach its peak coal use for electricity production in "the next few years", despite the fact that total electricity demand is expected to continue to increase.

The IEA reported that since 2019, the growth of electricity in China has been nearly 50% higher than the GDP.

The economic growth in China, the rise of incomes, and policies promoting electrification will all contribute to this.

The report stated that "the share of electricity in China's final consumption will surpass oil by 2023."

The IEA stated that "By 2030, in the STEPS program, China will consume almost a third of its total energy, and it will surpass Japan as the most electrified large economy in the entire world."

The IEA predicts that China's per capita oil consumption will be around half of that in advanced economies.

Power Switch

China has been pushing hard for electrification and now dominates solar panels, batteries, and electric vehicles.

This competitive advantage is being used to reduce its dependence on imported fossil fuels.

It is also willing to use its large domestic coal reserves and imports of cheap coal to drive electrification.

China's main challenge will be to integrate the huge amounts of renewable energy it plans to install in its electricity grid.

Storage is one way to balance the variability of renewables. In 2023, China will add 23 GW, mainly batteries, and 6 GW pumped hydro.

As more renewable energy enters the grid, the rate of storage capacity expansion will likely have to accelerate. This has implications for China’s demand for metals such as nickel, copper, and lithium.

The rapid electrification of China is likely to have the greatest impact on crude oil.

China's oil demand is likely to peak in the coming years. However, the products that it requires will also change.

China's fuel consumption will decline, but it is likely to need more naphtha in order to meet the growing petrochemical needs, and more jet kerosene due to increased air travel.

These are the opinions of a columnist who writes for. (By Clyde Russell, edited by Christopher Cushing).

(source: Reuters)