Repeats with no changes
Trump administration seeks licence for ethane exports to China
China accounts for 46% of US ethane exports
Ethane is used to produce plastics
By Ron Bousso
LONDON, June 5 - The Trump administration's latest efforts to curb U.S. petrochemical exports to China could end up hurting the U.S. energy sector just as much, or more, than the Chinese economy.
The booming plastics feedstock trade between the world's two largest economies is a prime example of the benefits of a dynamic, open, global trading system. As U.S. ethane production exploded in recent years, the excess production was largely met by a parallel expansion in appetite in the overseas petrochemical sector, particularly from China.
Trump exempted energy products from his sweeping "Liberation Day" import tariffs on April 2, an apparent sign of his administration's sensitivity to the impact that energy levies could have on consumer prices.
But Enterprise Products Partners, one of the top U.S. operators of marine export terminals of natural gas liquids, on May 29 said that it had been notified by an agency of the Department of Commerce that the company will now require a licence to export ethane and butane to China due to the "unacceptable risk" that China could use these products for military purposes.
Around 40% of the roughly 213,000 barrels per day of ethane loaded last year from Enterprise’s main export terminal was shipped to China. The company said it could not determine if it could obtain a licence.
The U.S. decision was the latest step in Washington's high-stakes trade war with Beijing, which seemed to cool somewhat after the sides held bilateral talks in Geneva last month and agreed on a 90-day truce to dial back triple-digit tariffs.
These export curbs, particularly on ethane, a byproduct of natural gas that is used to produce the building blocks for plastics, speak to the slapdash nature of this trade war salvos.
First, there is little evidence to suggest that ethane or butane exports are used significantly by China's military beyond the obvious dual-purpose uses of plastics, heating fuel or refrigerant. What's more, the export licence notice did not include the material ethane is used to make, polyethylene.
There is no doubt that the loss of U.S. ethane will hurt China's petrochemical producers. China in April reportedly exempted ethane from its reciprocal 125% tariff on U.S. imports to ease pressure on its petrochemical sector.
But the curbs cut both ways.
SELF-INFLICTED WOUND
Ethane production in the United States rose to a record 2.83 million bpd in 2024, nearly tripling from 2014, according to Energy Information Administration data. This was driven by the surge in natural gas production from onshore U.S. shale basins.
The U.S. is currently the only major exporter of ethane, as exports rose 13-fold in the decade to 2024 to 492,000 bpd, 46% of which went to China, according to the EIA.
On the flip side, the United States accounted for practically all of China's ethane imports of 261,000 bpd last year, according to analytics firm Kpler.
China remains the only country able to absorb growing U.S. ethane exports at a large scale. China's ethylene production capacity is forecast to grow to around 80 million tons per year by 2028 from 55 million tons in 2024, representing 50% of new global capacity, according to the Oxford Institute of Energy Studies.
Other markets for U.S. ethane exports are expected to open up, including India and Thailand, but the shift will not happen quickly. While the United States is expanding its ethane export terminal capacity, importing countries, particularly in Asia, will require years to build import terminals and ethane carriers.
For China, losing the U.S. ethane feedstock will certainly erode petrochemical manufacturers' profit margins, as they will need to rely more on naphtha, a pricier feedstock, or source ethane from smaller exporters. In certain circumstances, this could lead to temporary plant closures.
But it is unlikely to severely impact the trajectory of the sector's growth in China.
That’s mainly because around 70% of China's total ethylene production capacity already uses naphtha, with ethane and other liquid petroleum gas products accounting for only 8% of feedstock, according to Sinopec's Economics and Development Research Institute 2024 annual report.
But a halt on ethane exports to China could create a severe domino effect in the United States whereby domestic inventories build up, forcing producers to lower ethane processing at shale basins. This in turn could impact the profitability of oil and gas drilling operations. It could lead to excessive quantity of ethane in natural gas, increasing costs for producers of liquefied natural gas, a major U.S. industry.
The Trump administration’s ethane exports restrictions could meet its intended objective of hurting China’s petrochemical industry, but that would come at a high cost for the country’s oil and gas industry.
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U.S. ethane exports https://www.reuters.com/graphics/US-ETHANE/akpenbeakvr/chart.png
U.S. ethane production https://www.reuters.com/graphics/US-ETHANE/akvenbeqkpr/chart.png
(Ron Bousso; Editing by Nia Williams)
((ron.bousso@thomsonreuters.com +447887626565))
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