China is currently the largest importer of U.S. ethane, a vital feedstock for its petrochemical industry. However, escalating trade tensions have led to the imposition of a 125% tariff on U.S. ethane imports by China, rendering these imports economically unviable compared to alternatives like naphtha .
Impact on U.S. Ethane Producers
Should China cease importing U.S. ethane, American producers may be compelled to “reject” ethane back into the natural gas stream. This process could exacerbate existing infrastructure constraints, particularly in the Permian Basin, which is already facing pipeline capacity issues through the second half of 2026 .
Bank of America analysts estimate that such a scenario could depress Mont Belvieu ethane prices to below $0.15 per gallon, down from approximately $0.25 per gallon .
Effects on Midstream Companies
Midstream firms like Energy Transfer LP (NYSE: ET) and Enterprise Products Partners (NYSE: EPD) might experience limited financial impact due to existing take-or-pay contracts. However, exposure to Chinese markets remains a concern, with Energy Transfer potentially facing several hundred million dollars in revenue risk .
China’s Strategic Considerations
Recognizing the challenges, China is reportedly considering exemptions for certain U.S. goods, including ethane, from the imposed tariffs. Such exemptions would reduce the tariff from 125% to a nominal 1%, alleviating supply chain pressures for Chinese petrochemical companies that rely heavily on U.S. ethane .
