China is drawing up a plan to replace a million heavy duty diesel trucks, almost 20 percent of the national fleet, with ones that burn cleaner fuel, as Beijing ramps up its war on pollution, potentially dealing a heavy blow to oil refiners.
The transport and environment ministries are considering proposals that include replacing vehicles with more modern trucks using a higher grade of diesel called National Five, and using electric trucks or ones that run on liquefied natural gas (LNG), an industry source, who is involved in the discussions, said. He declined to be identified as he is not authorized to speak to the media.
The policy would come into effect in 2020 and would be implemented in the smoggiest northern regions of the country.
It was not clear when the two ministries would make their final decision.
The Ministry of Transport (MoT) said in July it wanted to remove a million polluting trucks in northern China as part of a three-year plan, but no details of the proposal have been reported. There are an estimated 6 million heavy duty trucks on China’s roads currently.
The MoT confirmed the two ministries are drafting a plan, but declined to reveal more details. The Ministry of Environment and Ecology was not immediately available for comment.
The push is the latest by the government to improve air quality, curb exhaust emissions from road vehicles and boost railroad use. The vast majority of the 47.2 billion tonnes of freight transported across China last year was by highway.
The two ministries have held several meetings with industrial experts in recent months to iron out details of the proposal, the source said.
He said the government is also considering subsidies for electric and gas vehicles because they are more expensive than diesel trucks.
The government may also set stricter emissions targets for heavy duty trucks and increase emissions checks on vehicles, the source said. The “National Five” standard allows a maximum sulfur content of 10 parts per millions (ppm).
The final policy may end up including a combination of several or all three of the proposals.
But if it pulled so many diesel trucks off the road en masse, it would remove as much as 20 million tonnes of annual demand, according to Reuters’ calculations based on trucks that use 20 litres of diesel per 100 miles.
That’s 11 percent of China’s annual diesel output.
If adopted, it could slow China’s outright crude oil demand growth, which has been a key global price driver and revenue safeguard for the petroleum industry.
It would also have a major impact on oil refiners across Asia, including China’s state-owned majors Sinopec and CNPC. Refiners geared toward lower diesel grades will out as the world’s biggest diesel consumer moves toward cleaner fuel.
The industry produced about 183 million tonnes of diesel last year, with retail prices recently surging after independent refiners ran low on stocks during the summer maintenance period.
“The measures might further dampen diesel demand from long-distance truck drivers, who have been struggling with high prices,” Han Cong, fuel analyst with consultancy JLC, said. (Reuters)