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Morningstar | China Oil & Gas: Above-Consensus Forecasts for Medium-Term Growth, but Electric Vehicles Loom Large

Consensus is missing the boat on China’s medium- and long-term oil demand but, interestingly, in different directions. Over the next five years, we’re bullish. We think that by relying on China’s inflated official GDP growth figures, other forecasters are underestimating China’s income elasticity of oil demand. Looking from the bottom up, near-term improvements in China's fuel-efficiency standards will be more modest than headline requirements suggest. Also, others have mistakenly identified the decline of China's investment boom as necessitating the end of diesel growth. Still, in the long run, electrification of China’s vehicle fleet looms large for oil. We think China's EV adoption is primed to take off, reaching 25% of sales by 2028 and catalyzing peak oil demand for China as early as 2030. We remain bearish on long-term oil prices, with the belief that U.S. shale will sop up incremental medium-term Chinese demand. As such, investors should be cautious with oil-leveraged stocks. On the gas side, above-consensus forecasts for natural gas consumption drive our bullish view on China’s LNG imports. Top LNG-related investment ideas include Cheniere Energy, ENN Energy, Woodside Petroleum, and Royal Dutch Shell.

Please see our Energy Observer, "China Oil & Gas Demand: Above-Consensus Forecasts for Medium-Term Growth, But Electric Vehicles Loom Large for Oil" for more on our Chinese oil and gas demand forecasts.