In its new medium-term report on oil that came out last week, the International Energy Agency predicted that oil demand will peak by 2028.
This is not the first time the IEA is predicting peak oil and the reason is also the same as the reason for previous predictions to this tune: a surge in EV adoption that would displace demand for fuels.
Yet the new IEA report also mentioned something else that would probably make politicians in Europe and North America who want to ban internal combustion engines quite happy.
What the report mentioned was that China is on its way to becoming the country with the greatest oil refining capacity in the world. And this would make it the single biggest supplier of things like gasoline and diesel to the world. With the power to dictate prices.
This is what Reuters columnist Clyde Russell noted this in a column dedicated to this part of the IEA report. “China's refined product exports are subject to quotas granted by Beijing, which acts more in what it deems the interests of the domestic economy and markets, rather than what the global markets may be signalling,” Russell wrote.
The IEA itself also recognised China’s growing role as fuel supplier to the world by pointing out that “Crucially, our forecast for product balances is heavily dependent on higher Chinese product exports, especially for diesel.”
China overtook the United States to become the world’s largest refiner last year, the IEA also noted in its report, but it is not stopping there. Instead, refiners in China are building even more capacity, with the total set to reach 19.7 million barrels daily by 2028. Of this, more than 3 million barrels daily will be spare capacity, the IEA said.
The presence of this spare capacity suggests that China may be planning to really become the world’s fuel supplier after European and U.S. refiners shut down their facilities under the weight of ICE phase-out mandates or convert them to biofuel production plants. Because China knows that you can’t ban ICE cars and switch entirely to EVs.
China is not only the world’s biggest refiner of oil. The country is also the biggest market for electric vehicles in the world. The IEA forecast that by 2028, there will be more than 155 million EVs sold in total globally. More than half of these cars, the report added, will be sold in China.
Already, China accounts for more than half of global EV sales. Yet at the same time it is building more oil refining capacity. On the face of it, this may look odd and possibly even irrational. It could indeed be a miscalculation and China could end up with several million barrels in unused and unusable oil refining capacity as demand for fuels slumps.
On the other hand, it might be the same thing that China is doing with wind, solar, and coal. One of the other things that the country is the biggest in is wind and solar generation capacity. At the same time, it is also the most active builder of new coal plants, too. Because, as stated by government officials, China is all in on all energy and is not picking favourites.
China is going to become the world’s refiner. The size of its exports will depend on what the ruling party decides should be exported. And this means that China will have its hand on the global fuel price lever the way OPEC has its hand on the crude oil price lever.
Those ICE bans in the EU, Britain, and California might end up being a necessity rather than a transition-happy whim. And even then, there will be no escape from dependence on China: the biggest producer and processor of battery minerals in the world.
By Irina Slav for Oilprice.com