China is Leading This Energy Technology Transition

The Real Estate Espresso Podcast

China is Leading This Energy Technology Transition

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Introduction: China is Leading This Energy Technology Transition

In a world where we generally perceive the West as the great wellspring of technological innovation and Asia as falling into a copying role, it is China that is taking the lead in this significant energy transition.

The Diesel Paradox

Diesel engines, often used in long haul trucking and heavy equipment operations, and essentially the first internal combustion engines, are becoming less demanded in China. Given the growth of the Chinese economy, it would be natural to expect an increase in oil consumption, particularly diesel. Yet, this demand is falling, and it’s not merely attributable to electric vehicle conversion for domestic users. The reduction is primarily in demand for diesel, intensively utilized for long haul transportation. The questioning remains; how can the economy grow while diesel consumption drops?

The LNG Proliferation in China

China seems to be breaking the molds through a significant move, replacing its long haul diesel fleet with Liquefied Natural Gas (LNG). A mammoth shift, that has effectively replaced approximately 600,000 barrels of diesel daily. But why the sudden shift? At face value, LNG doesn’t appear more convenient; it needs to be supercooled and carried in a liquefied state. However, the main driving factor is the cost-effectiveness of LNG compared to diesel.

Fuel Type	Average Cost (USD) per million BTU
Diesel (USA)	27.29
Diesel (China)	28.96
Natural Gas(LNG) (USA)	2.53
Natural Gas (LNG) (Import in Asia)	10.50

In comparing the energy cost of diesel and LNG, the cost advantage is clear – LNG can save almost two-thirds of fuel costs compared to diesel. This saving is a significant competitive advantage for transport companies, given that fuel contributes to about 30% of their expenses.

Implications for Investors

China’s move is not just about cost savings. It’s strategic. Russia, China’s neighbor to the west, could provide a cheap supply of natural gas. If the USA followed China’s footsteps and invested in LNG distribution infrastructure, it could also harness the same competitive advantage. The potential disruption in energy markets is one that real estate investors need to pay close attention to.

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