IEA: China’s Fuel Binge is the Biggest Oil Demand Driver

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Fuel storage tanks. While the switch to electric vehicles threatens conventional fuels such as diesel and gasoline, petrochemicals can drive oil demand on the long-term. (Samuel Corum/Bloomberg News)

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The International Energy Agency reported that Chinese purchases of a relatively niche fuel from the U.S. were the single largest contributor to the growth of global oil demand in recent years.

The IEA’s Oil 2024 report, which is essentially the agency’s mid-term outlook, stated that China has purchased an additional 850,000 barrels of so-called NGLs or polymers per day since 2019. This represents just over half the growth in demand for all oil products during this period.

NGLS or natural gas liquids are a byproduct of gas production. They can be used to produce petrochemicals. The U.S. has seen a significant increase in their production due to the increased shale production. NGLs are also used in the production of plastics and as fuels, such as propane, to heat homes and offices.

The surge in demand is a rare indication of the growing interconnection of the U.S. economy and the Chinese economy. Oil companies and energy agencies have said for years that petrochemicals, primarily used to make plastics, will be the major driver of global consumption on the long-term. This is despite the fact that conventional fuels such as diesel and gasoline will be threatened by the switch to electrical vehicles.

The IEA stated that “this has transformed the oil and petrochemical markets dynamics.” “Chinese petrochemicals feedstocks have contributed the most to the growth of world oil demand in recent years. This is in perfect harmony with the largest driver of incremental global supply, U.S.NGLs.”

Despite China’s petrochemical explosion, the IEA said that the country’s gas demand could start to decline in 2025. This is due to the mass-market electrification, as battery EVs or plug-in hybrids make up 50% of domestic vehicle sales.

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