The Rise of LNG Trucks: China’s Shift and India’s Ambitions

Trucking fleets in China are rapidly adopting liquefied natural gas (LNG) as a cleaner alternative to diesel, a move that is reshaping fuel demand dynamics in the region. This shift is part of a broader trend toward cleaner energy, reflecting the country’s efforts to combat pollution while achieving economic efficiency. The ripple effects of this shift are being felt in global energy markets, as it contributes to a decrease in diesel demand and disrupts traditional fuel suppliers for China, the world’s largest oil importer. As China sets the stage, neighboring India is watching closely, aiming to replicate the success, albeit with challenges ahead.

China’s embrace of LNG-powered trucks is unfolding alongside its status as a global leader in electric vehicle (EV) adoption. This shift is further amplified by a protracted economic slowdown that has reduced demand for fuel, traditionally driven by China’s rapid industrial growth. The result is a decline in crude oil imports by 2.8% so far this year, putting pressure on global oil prices. The Organization of Petroleum Exporting Countries (OPEC) recently warned that the increasing prevalence of LNG trucks in China could further dampen the country’s demand for conventional fuels in the coming years.

China has seen a significant rise in the adoption of liquefied natural gas (LNG)-powered heavy-duty trucks, with their market share jumping from below 10% to 30% by the end of 2023. This shift has led to a notable reduction in the country’s diesel demand, displacing more than 8% of diesel consumption on roads, equating to around 220,000 barrels per day (b/d), according to a Wood Mackenzie report titled The Threat to Diesel from LNG Trucking in China.

The report highlights several factors behind this transition. Policies aimed at reducing air pollution and carbon emissions have driven China’s promotion of LNG trucks while simultaneously restricting diesel vehicles. The government has also been encouraging the development of LNG refueling infrastructure. Additionally, falling natural gas prices, coupled with rising diesel costs, have made LNG trucks more cost-effective for fleet operators. By 2023, heavy-duty trucks made up more than a quarter of China’s commercial vehicle fleet, totaling 8.76 million vehicles. The peak in diesel truck numbers came in 2021, after which their count started declining, allowing LNG’s share to grow to over 9% of the heavy trucking fleet by 2024. Shiqing Xia, a consultant for Oils and Chemicals at Wood Mackenzie, noted that LNG trucks are particularly suited for medium to long-distance freight transport between cities. These vehicles offer lower emissions of sulfur and particulates compared to diesel trucks, which not only contributes to improved air quality but also enhances engine longevity and performance. The report emphasizes that the favorable pricing of LNG relative to diesel has boosted LNG truck sales. Since 2023, the price gap between LNG and diesel has widened, with natural gas prices decreasing while diesel prices have surged due to global crude oil trends.

However, the report also predicts that the momentum behind LNG trucks is likely to slow down by the end of the decade. As advancements in battery technology continue, electric vehicles are expected to overtake LNG as the primary alternative to diesel in the long term. Diesel demand for road transport in China is projected to drop from 2.3 million b/d in 2023 to just 0.7 million b/d by 2050. Xia concludes that while LNG trucks are currently popular as a cleaner alternative to diesel, they should be viewed as a temporary solution. To stay competitive and meet future environmental standards, investments in electric or hydrogen fuel cell trucks will be crucial for long-term success in the market.

In the first half of 2024, sales of LNG trucks in China soared to 108,862 units, more than doubling compared to the same period in 2023, according to data from CVWorld. This surge can be attributed to a significant drop in local LNG prices, as well as government subsidies and stricter emissions regulations, which have collectively made LNG an appealing option for logistics companies. The trend has been particularly noticeable in northern China, where proximity to gas fields has enabled more competitive LNG prices and widespread adoption of these trucks.

India is keen to follow China’s example, but it is still in the early stages of its LNG adoption journey. According to the Indian Ministry of Transport, only 645 LNG trucks are currently on the road, reflecting the nascent state of the sector. Nevertheless, the Indian government has set an ambitious target: converting roughly one-third of its heavy-duty truck fleet—amounting to over 7 million vehicles—to LNG within the next five to seven years. Experts are cautious about this goal, noting that achieving it would require significant policy support and infrastructure development.

Despite the hurdles, India’s push toward LNG could also reshape its diesel demand trajectory. Analysts predict that as Chinese demand stabilizes, India is likely to become the primary growth driver for global fuel consumption. However, the transition to LNG could slow this trend. Amrita Sen, founder of research consultancy Energy Aspects, remarked, “India will not have the same penetration rates as China, but improved infrastructure has already reduced inefficiencies, and Indian diesel demand growth may have peaked as a result.”

The Chinese and Indian governments are both actively supporting the transition to LNG-powered trucks as a strategy to reduce pollution and achieve energy security. However, the primary draw for companies remains cost savings. Industry experts suggest that LNG trucks become financially viable when LNG is at least 20% cheaper than diesel.

Although the upfront costs of LNG trucks are higher—40% more expensive than diesel trucks in India and around 18% in China—companies can recoup these additional costs relatively quickly. A June report from Horizon Insights noted that in China, businesses could recover the higher purchase cost of LNG trucks within 190 days, thanks to fuel savings. In India, the payback period is longer—around one and a half years—based on an annual mileage of 80,000 kilometers, according to Gurpreet Singh, managing director at global consultancy ICF.

One of the major obstacles to India’s LNG adoption is the lack of refueling infrastructure. Kaizad Palia, Chief Operating Officer of GreenLine Mobility Solutions Ltd, which currently operates around 500 LNG trucks, highlighted that a shortage of refueling stations outside western India is a key challenge. “Where there is no network as of now, we are unable to pitch in. We will expand our operations with the expansion of fuel stations in the country,” he noted.

In contrast, LNG trucks in China have gained traction in northern regions, where the presence of gas fields keeps LNG prices relatively low. However, in the southern parts of China, where LNG is more expensive, the cost-effectiveness of these vehicles is less pronounced. This regional price variation underscores the importance of strategic infrastructure investments to support the broader adoption of LNG trucks.

The growing adoption of LNG trucks in China and India is contributing to a decline in diesel consumption on a global scale. According to estimates from Wood Mackenzie, natural gas vehicles used in road freight could displace approximately 360,000 barrels per day (bpd) of diesel consumption in 2024 and 380,000 bpd in 2025. This shift could affect the profitability of refining diesel, as demand wanes in key markets like China and India.

Yet, the momentum of LNG trucks depends heavily on maintaining competitive fuel prices. The International Energy Agency (IEA) has projected an “unprecedented surge” in new LNG projects starting from next year, which could exert downward pressure on LNG prices. However, the recent rise in local LNG prices and the decline in diesel prices in August briefly slowed LNG truck sales in China, highlighting how sensitive the market is to price changes.

While LNG trucks are leading the shift towards cleaner fuel in the present, the future might belong to electric trucks, especially in China, the world’s largest EV market. As battery technology advances and infrastructure for battery swapping becomes more prevalent, electric trucks could potentially replace LNG vehicles in the long run.

However, India’s policies continue to favor LNG trucks for the near future. The government plans to increase the number of LNG refueling stations to 66 within a year, compared to the current 20, according to an official involved in the plan. The think tank NITI Aayog has recommended measures such as lower taxes and toll exemptions for LNG trucks, as well as incentives for manufacturers. Additionally, the government may introduce subsidies to keep LNG prices at least 20% cheaper than diesel to encourage adoption.

Several companies in India are already investing heavily in LNG trucking. Blue Energy Motors, based in Pune, launched its LNG truck in 2022 in partnership with Italy’s Iveco Group. The company has sold 600 units so far and aims to increase that number to 1,000 by the end of the current fiscal year and 3,000 in the next. It recently won a tender to supply 130 LNG trucks to Container Corp of India, reflecting growing interest in LNG as a transport fuel.

Similarly, GreenLine Mobility Solutions Ltd has ordered over 2,000 additional LNG trucks to expand its fleet, showing confidence in the potential of LNG despite infrastructure challenges. These investments reflect optimism about LNG’s role in the transition to cleaner energy in India’s transportation sector.

The shift to LNG in trucking is transforming fuel consumption patterns in China and could soon do the same in India. This move is reshaping global energy markets, challenging traditional diesel suppliers, and pushing both countries towards more sustainable transportation systems. While the path for India is more uncertain and ambitious, the potential benefits in terms of reduced emissions and fuel savings make LNG a promising option. As both countries navigate this transition, the balance between LNG, diesel, and the longer-term rise of electric trucks will continue to shape the future of transportation in the region.

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