Tariff elimination is a win-win for US ethane producers, Chinese ethane-ethylene plants

The complete exemption of US ethane from China's retaliatory tariffs is expected to immediately revitalize exports to the country, providing critical relief to Chinese ethane-ethylene plants that depend exclusively on US supply for their feedstock requirements.

In the US, where about half of ethane exports go to China, the exemption reflects the relatively nonchalant attitude of ethane exporters during their Q1 results calls in recent weeks. Enterprise Products Partners and Energy Transfer, the two largest ethane exporters of the US Gulf Coast, noted they had not seen any cancellations from ethane shippers, while outlining their plans to further expand NGL exports.

The tariff exemption, announced as part of China's broader reduction of duties on US energy products effective May 14, removes a significant barrier that had threatened to shut down operations at China's ethane-consuming petrochemical facilities. Prior to the exemption, US ethane faced prohibitive additional tariffs of 125%, which had been implemented in April.

"The ethane exemption allows these plants to continue operations," sources with ethane-ethylene plants told Platts, confirming that the Chinese government had verified the full removal of additional tariffs on US ethane imports.

Market sources confirmed on May 12 that the Chinese government would not issue a formal announcement of the ethane tariff exemption, which was expected by the US ethane industry.

Complete Chinese dependence on US supply

China's private ethane-ethylene plants have developed with complete reliance on US ethane as feedstock, making them particularly vulnerable to the trade dispute. Unlike propane or crude oil, where alternative suppliers exist globally, the specialized nature of ethane shipping and handling infrastructure has limited China's import options primarily to US sources.

The ethane market is structurally different from other energy products affected by the tariffs. While China can source crude oil from multiple regions and propane from Middle Eastern suppliers, ethane requires specialized very large ethane carriers (VLECs) and dedicated import terminals that have been built specifically for the US-China trade route.

"This exemption is critical because there simply aren't readily available alternative sources of ethane at the scale China needs," a petrochemical industry analyst explained. "These plants were designed specifically to process US ethane, and switching feedstocks would require significant modifications and investments."

The US Energy Information Administration (EIA) said in its Short-Term Energy Outlook that it expects the US to export 540,000 b/d of ethane in 2025 and 640,000 b/d in 2026, up from 492,000 b/d in 2024.

However, at the time of the report’s release, the EIA was confident that China had waived its tariff on ethane imports from the US.

“As of the time of publication of the May STEO forecast, China has waived a 125% tariff on US ethane imports,” the EIA said in its STEO report. “Although there is uncertainty related to the changing tariff policies, we forecast US ethane production will rise in 2025 and 2026 because of higher US exports of ethane in both years.”

The EIA expects US ethane production to climb to 2.9 million b/d in 2025 and 3.1 million b/d in 2026, up from 2.8 million b/d in 2024.

“US ethane exports have been increasing because of higher global petrochemical demand, ethane that is low cost compared with other feedstocks, and a growing, higher capacity tanker fleet to ship the ethane,” the agency said.

Rapid recovery expected to bolster US ethane growth

Industry experts anticipate US ethane exports to China could quickly rebound to pre-dispute levels now that the tariff barrier has been removed. Unlike crude oil and LNG, which still face substantial tariffs of 20% and 25% respectively, ethane's complete exemption eliminates the economic obstacle to resumed trade.

The timing of the exemption is particularly important for Chinese petrochemical producers who have faced challenging market conditions. Ethane-to-ethylene margins have been under pressure from weak downstream demand and global overcapacity in petrochemicals. The removal of tariffs will help restore competitiveness to these facilities.

"With ethane fully exempted, we expect to see an immediate resumption of normal ordering patterns from Chinese buyers," said a US energy export specialist. "The specialized nature of ethane shipping means there's likely pent-up demand that will translate to increased cargo bookings in the coming weeks."

Before the announcement of the ethane exemption, S&P Global Commodity Insights projected a reduction of 75,000 b/d in May exports.

According to S&P Global Commodities at Sea, USGC exports of ethane have averaged 380,600 b/d over the last twelve months, of which 253,000 b/d was imported by China. However, prior to the tariff announcement, USGC export volumes dipped. For the week ended May 10, USGC ethane exports averaged 322,700 b/d, with only 136,000 b/d going to China, only to pick up after the announcement of the lifting of the tariff. CAS USGC export volumes for the week ended May 17 are averaging 382,600 b/d, with the total volume heading to China.

US prices of ethane have remained steady throughout the tariff talks. Early indications for Mont Belvieu Enterprise ethane early May 12 were around 26 cents/gal. Platts assessed Mont Belvieu Enterprise ethane on May 9 at 26.375 cents/gal, up from 24.375 cents/gal on May 5, as news emerged that talks between China and the US were scheduled for the weekend.

Impact on US producers

For US natural gas producers, particularly those in ethane-rich basins like the Permian and Marcellus/Utica, the resumption of Chinese demand provides a welcome outlet for ethane that might otherwise be rejected into the natural gas stream. US ethane production capacity has continued to expand, and maintaining export channels is crucial for balancing the domestic market.

The ethane exemption stands in contrast to the situation for US propane and butane, which will still face 10% additional tariffs, and crude oil and LNG, which remain subject to higher duties. This differential treatment highlights the strategic importance of ethane to China's petrochemical industry and the limited alternatives available in global markets.

"The complete exemption for ethane versus the partial reductions for other energy products shows China's recognition of its dependency on US ethane," noted an industry consultant. "This targeted approach suggests China is being strategic about which sectors it provides relief to, prioritizing those where alternative suppliers are limited."

While some players in the ethane industry view the ethane exemption as a positive development for the US ethane sector, concerns persist regarding its future, particularly given President Trump's tendency to make abrupt policy changes.