China’s Electric Truck Boom Poses New Threat to Demand for LNG

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China’s rapid adoption of electric trucks — which overtook gas-powered vehicle sales for the first time last year — is threatening a key source of demand for the country’s suppliers of the fossil fuel.

Sales of heavy-duty trucks powered by batteries and other new energy sources hit a record in December, helping lift the full-year figure nearly threefold to over 230,000 units, according to registrations tracked by CVNews, a local platform covering commercial vehicles. That pushed annual sales of electric trucks to 20% of China’s total, an acceleration that’s sounding alarm bells in the natural gas market.

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Source: BloombergNEF, China Automotive Technology and Research Center.

The electric vehicle boom has already gutted demand for traditional fuels like gasoline and diesel in the market for passenger cars. Cleaner-burning natural gas, which has carved out an important niche in road freight, is now in the firing line. Roughly 50% of China’s consumption of liquefied natural gas, the pricier, seaborne version of the fuel, comes from the transport sector.

Most trucks in China still run on diesel or gasoline. LNG-truck usage continues to expand, although the pace has slowed. Sales rose 12% last year to just under 200,000 vehicles, based on insurance data cited by CVWorld, another news outlet. But government policies are favoring a faster transition to zero-emission engines.

The Chinese government has tightened up on auto pollution, pushing its emissions rules closer to global standards. It has also extended subsidies to scrap old trucks, and while the total funding for the program could drop this year, Beijing is prioritizing support for the electric versions, according to BNEF.

“Enhanced scrappage subsidies boosted e-truck purchases last year,” said BloombergNEF analyst Maynie Yang.

Strip out subsidies, and LNG trucks still enjoy a cost advantage over their electric competitors, BNEF said. How the rivalry plays out in coming years will depend on broader market shifts. On the one hand, gas prices are expected to drop as global supply expands. On the other, battery costs are falling as China promotes innovation in green technologies.

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