US ethane: What comes next?
We take stock of the recent developments in ethane trade flows, given recent requirements for licenses for US exports to China, China’s dependence on US ethane, and near- and longer-term options. We look at flow and price impacts in three scenarios: (1) Licenses granted or rescinded; (2) no clarity through summer, and (3) licenses denied.
Despite the conclusion of seemingly successful US-China trade talks this week, the global ethane market remains in limbo – US exporters still lack clarity over recent requirements for licenses should they wish to move barrels to their largest offtaker, China.
Market perception when US ethane export licenses were first announced in late May was that it would be a short-term disruption and these would be granted by end-June. Doubt was cast over that perception when Enterprise Products Partners – one of only two ethane exporters in the US (the other being Energy Transfer) – was denied licenses for three cargoes. It is unclear if larger blanket export applications are pending.
Currently, two VLECs, the Gas Changjiang and STL Qianjiang, are heading to India after cargo resales. Three ethane ships (two laden, one ballast) are sitting idle at berth or around the Houston Ship Channel; two more ships usually bound for China are incoming.
Although trade talks effectively reset relations back to the détente set in May (90-day pause with 10% baseline tariffs with exemptions on ethane imports from the Chinese government), discussions never got round to energy commodities, which was admittedly not on the agenda in the first place.
The global ethane market is looking at one of three scenarios:
All is well: Licenses are granted or license requirements are rescinded
A resumption of business as usual should see a return of Chinese ethane imports of ~240 kbd for the H2 July laycans but more so from August deliveries onwards.
China imports of US ethane by destination port (kbd)
US ethane flat prices will likely get lifted in this scenario with the contango at the front of the curve narrowing down to 1 cent per gallon (cpg), compared to the current 1.2 cpg, as storage becomes less of a fallback option.
All is quiet: No movement on licenses
We now have instances of cargo resales from Wanhua Chemical and Satellite Petrochemical to India (specifically, Reliance for the latter, which lifted 70 kbd of ethane from the US on average last year).
Chinese shippers have two choices: have their ships sit and incur hefty demurrage costs or attempt resales. India, the second-largest offtaker, would be the most obvious choice, but from a volumetric standpoint, cannot be the only one. Braskem Idesa in Mexico (19 kbd ethane imports in 2024), with its new ethane import terminal, may seem a likely candidate, but the preference there is for much smaller handysize vessels. Effectively, Chinese offtakers will have to seek out multiple buyers of their ethane.
Cargo swaps could prove to be another option if ethane is a must-have feedstock. For the most part, Chinese petrochemical firms that have steam crackers can switch to other feedstocks, but Satellite Petrochemical appears to have no way out with its 100% ethane-fed cracker in Lianyungang, which is currently down for maintenance through end-June along with other downstream units.
Steam crackers in China that import US ethane with feedstock flexibility (%) and daily ethane consumption (kbd) (source: Company reports)
Additionally, using other feedstocks is less than ideal given US ethane (even after factoring freight, etc.) has a ~$350/t cash cost advantage over propane and naphtha, meaning it will chip away at P&L at a time when petrochemical oversupply is looming large in Asian markets. We further note that burning propane and naphtha is coming under the $150/t breakeven level, making the use of other feedstocks less attractive.
Northeast Asia prompt and forward steam cracker margins ($/t) (Vortexa margin calculations based on Argus Media prices)
This scenario may very well be the base case until after the 90-day pause is over in mid-August. Flat prices will largely be rangebound as liquidity dries up, but timespreads will likely remain around 1.25-1.5 cpg.
All is lost: Export licenses denied
Given the US’ heavy reliance on ethane disposal in China and the utter reliance of China on this supply with no other alternatives, this does not seem a likely scenario. That said, it’s worth exploring the options should licenses remain in no man’s land past the end of the 90-day pause.
For one, cargo swaps become a must have for Satellite Petrochemical and could pave the way for other Chinese buyers. But as we’ve seen during the brief period of US propane swaps in April, these come with hefty premiums (ostensibly to offset transfer costs, etc.) and could ultimately prove uneconomic. This may not bode well for US exporters that have new ethane export terminal capacity on tap from now through end-2026.
US ethane export terminal new builds and expansions (source: company reports)
We have previously pointed out the need for US storage to soak up these supplies. EIA data for March (the most recent release date) shows US ethane stocks at 63.9mb, 5.7mb above year-ago levels and 17mb below the historical maximum. Theoretically, if stocks built at a similar pace to last year, this historical maximum could be reached by end-June/ early-July.
Which then turns us to the last option: ethane rejection i.e. leaving the ethane in the natural gas stream. This has usually been a decision based on economics or a lack of adequate ethane takeaway or processing. Neither is the case currently.
While US ethane as a differential to NYMEX Henry Hub is coming in at 94 cents/mmbtu (per June 12CME prices), indicating unprofitable ethane recovery, that is a faulty indicator of what ultimately goes into producer and midstreamer decision-making. Given the Permian Basin is the largest driver of US supply, a more realistic indicator is the differential between US ethane and Waha gas (benchmark gas market for West Texas). That differential stands at $1.59/mmbtu, a clear green light for ethane recovery. Indeed, if ethane rejection needs to be further incentivised, ethane prices would have to drop to ~20 cpg, roughly 3 cpg below where they are now. Ethane prices were last at those levels in November 2024, so such a price drop is not a bridge too far.
Ethane to remain vulnerable to any shifts in US-China trade relationship
As we’ve noted above, the symbiotic relationship between the US and China over ethane seems a case of “too big to fail”, and ultimately, we expect the US energy sector’s interests to hold sway with the administration. The question is: when?
Even if the license issue gets resolved, what lies in wait is the upcoming US Trade Representative’s port fees on China-operated vessels in October, which will have an outsized impact on ethane. These fees could affect ~27% of global ethane trade flows with Satellite’s 10 VLECs set to incur levies at upwards of $5 million per voyage. Indeed, ethane will remain very much in the crosshairs of the uneasy US-China relationship.
Ethane vessels in the global VLEC fleet that are / are not affected by USTR port fees (no. of vessels) 
