American Bank analysts, when discussing the potential consequences of the China-US trade war, stated that due to reciprocal tariffs leading to China suspending imports of US ethane (a petrochemical feedstock and a component of natural gas), this could cause a sharp decline in ethane prices and put pressure on the natural gas infrastructure of the Permian Basin in the United States.

China is the world's largest importer of ethane, but the current tariffs make US ethane uneconomical compared to naphtha.

American Bank said that if US President Donald Trump eases tensions or China grants tariff exemptions, this issue may be resolved, but neither of these events has happened yet.

If China stops purchasing US ethane, producers will be forced to release it back into natural gas.

American Bank said that although smaller basins such as the Bakken Basin, Rocky Mountain Basin, and Mid-Continent Basin are close to their maximum emission capacity, emissions must come from the Permian Basin on a marginal basis.

The natural gas pipelines in the Permian Basin are already under strain, and this situation will continue until the second half of 2026. The further abandonment of ethane will exacerbate this strain.

This could lead to Mont Belvieu's ethane prices moving toward Waha natural gas prices rather than being set at Henry Hub parity.

Based on current prices, American Bank estimates that ethane prices may fall below 15 cents per gallon, while the price at Henry Hub parity is approximately 25 cents per gallon.

This would have limited financial impact on integrated midstream companies; the EBITDA of most companies that integrate natural gas liquids (NGL) would decrease by 5-6%. Exporters like Enterprise Products Partners and Energy Transfer might be protected by contracts, but American Bank noted that these contracts mean hundreds of millions of dollars in risk exposure, with Energy Transfer facing greater risks related to China.

"We note that Trump may ease tensions or grant tariff exemptions for Chinese purchases of ethane, which could potentially eliminate this issue," American Bank analysts wrote.

In other reports, Chinese plastic factories reliant on US ethane imports face possible shutdowns.

Analysts said that nearly all the ethane required by Chinese plastic manufacturers comes from the US. China's retaliatory tariffs on US goods mean that factories unable to process alternative raw materials will face huge losses.

"The situation for China's ethane crackers is very severe because they have no choice but to rely on US supplies," said Manish Sehgal, an analyst at Rystad Energy AS. Sehgal stated, "Unless granted tariff exemptions, they may have to shut down or close shop."

According to Rystad, most of China's cracker plants use naphtha as feedstock, while only about 10%, or approximately 4 million tons, use ethane as the sole petrochemical feedstock. According to US Department of Energy data, China has been the largest buyer of US oil supplies so far.

Rystad stated that if China imposes a 125% tariff on US goods, the factory will lose $184 for every ton of US ethane processed. In contrast, without tariffs, the factory's profit exceeds $100.

The additional cost is another blow to China's plastics industry, which is already facing overcapacity due to demand growth lagging behind supply growth.

According to industry consultancy JLC International, China's domestic ethane production cannot fill this gap, with total domestic ethane production in China amounting to approximately 120,000 tons in 2024.

In addition, Rystad stated that the ethane market "is characterized by long-term contracts, leaving little opportunity to resell goods on the spot market," making it difficult for China to obtain alternative supplies from sources other than the US.

Original source: https://www.toutiao.com/article/7498652523599888923/

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