Despite US-China Trade War, China's Ethane Imports from US Soar

As the petrochemical industry faces declining profits, China's import of ethane from the US is projected to surge this year. The surge is driven by major petrochemical producers opting for the cheaper feedstock made available by the US shale gas boom.

Investments in Ethane Infrastructure

To meet the growing demand for ethane, Chinese companies are investing heavily in cracker plants, facility upgrades, storage expansion, and Very Large Ethane Carriers (VLECs) to transport liquefied gas. This investment, amounting to over $16 billion, indicates the industry's shift towards cheaper feedstock sources.

Factors Limiting Growth

While China's ethane imports are expected to increase, limited export capacity in the US and a shortage of tankers are hindering further growth. According to analysts, China's ethane imports are forecast to reach between 6.3 million and 8.2 million metric tons by 2025, representing a potential increase of 9% to 34%.

US Export Capacity Expansion

To meet the rising demand for ethane exports, US pipeline operators Energy Transfer and Enterprise Products Partners are expanding capacity at their terminals. However, as noted by Armaan Ashraf, head of natural gas liquids at FGE, US export capacity remains a key bottleneck.

Competition from Other Countries

While China remains the predominant importer of US ethane, other countries are also seeking to increase their intake to reduce trade deficits and take advantage of lower feedstock prices. Thailand, Siam Cement Group in Vietnam, and Formosa Petrochemical in Taiwan are among those exploring options for ethane imports from the US.

Tight Market Forecast

The growing demand coupled with constrained export capacity is expected to create a tight ethane market starting from 2026, according to Wang Yan of ICIS.

Strategic Considerations

Despite the ongoing trade tensions between China and the US, analysts suggest that ethane imports are unlikely to be significantly impacted. As China prioritizes affordable feedstock for its domestic industry, the trade flow is expected to continue.

Shipping Logistics

To support the projected surge in ethane imports, new shipping capacity is essential. For every million tons of cracking capacity, six VLECs are estimated to be required. However, construction time for VLECs is lengthy, typically taking three years. IINO Lines, a Japanese operator, has leased its first two VLECs to Ineos to transport US ethane to China.

Impact of Tariffs

While some analysts express concerns over the potential impact of tariffs on ethane trade, others, such as Enterprise CEO Jim Teague, downplay the likelihood. They argue that China's dependence on imported ethane for its industry will incentivize the continued flow of feedstock.

Outlook

China's ethane imports from the US are set to increase significantly as petrochemical producers seek cheaper feedstock to enhance profitability. Despite limitations in export capacity and shipping availability, the surge in demand is expected to drive further investments and resource optimization in the industry.