Why Ethane Export Controls Ignite Money Risks

A New Front in the U.S.-China Trade War

The U.S.-China trade war, already a cauldron of tariffs and counter-tariffs, has boiled over into a new arena: ethane, a critical petrochemical feedstock used to produce plastics. On May 23, 2025, the U.S. Department of Commerce mandated that exporters, including giants like Enterprise Products Partners and Energy Transfer, secure licenses to ship ethane to China, the world’s top buyer of this gas. This move, aimed at curbing China’s supply chain dominance, has sent ripples through global markets, threatening billions in trade flows and reshaping investment landscapes. With China importing a record 492,000 barrels per day (bpd) of U.S. ethane in 2024—nearly half of U.S. exports—the stakes are sky-high.

Ethane, a byproduct of oil and gas production, is a cornerstone of the plastics industry, feeding “crackers” that produce ethylene for everything from packaging to car parts. The U.S., leveraging its shale gas boom, has become China’s primary ethane supplier, as no other country exports significant waterborne volumes. But Washington’s new controls, citing national security concerns over potential military end-uses, could choke this vital trade artery. Chinese petrochemical firms, reliant on cheap U.S. ethane to undercut pricier naphtha, now face soaring costs or potential shutdowns. Meanwhile, U.S. producers risk a glut of unsold ethane, which could depress domestic prices and squeeze profits.

Market Shockwaves: Stocks and Supply Chains

The financial fallout was immediate. Shares of Chinese ethane importers like Satellite Chemical (002648.SZ) dropped 3.1% on May 30, 2025, while Wanhua Chemical (600309.SS) shed 1.3%. U.S. exporters weren’t spared: Enterprise Products Partners (EPD.N) saw its stock dip 1.12%, and Energy Transfer (ET.N) fell 1.4% the same day. These declines reflect investor jitters over disrupted trade flows, with at least two Very Large Gas Carriers (VLGCs) idling at U.S. ports and 15 more waiting to load 284,000 bpd of ethane in June 2025. If licenses aren’t granted soon, analysts warn of “critical feedstock shortfalls” for Chinese plants and stalled U.S. exports.

The numbers tell a stark story. U.S. ethane exports to China hit $13 billion in 2024, part of a broader $143.5 billion U.S. export market to China, with oil and gas making up over 10%. China’s plastics industry, producing 4 million tons of ethane-based petrochemicals annually, faces a dire squeeze, as domestic ethane production (120,000 tons in 2024) can’t plug the gap. Without U.S. supply, Chinese firms may switch to naphtha, which could raise production costs by 20-30%, hammering profit margins already strained by overcapacity.

On the U.S. side, a supply glut looms. With domestic demand for ethane saturated, producers rely on China to absorb excess supply. If exports stall, ethane could be “rejected” into natural gas streams, potentially lowering U.S. natural gas prices by 5-10%, according to Rystad Energy. This could dent revenues for shale giants like ExxonMobil and Chevron, whose natural gas liquids (NGLs) production exceeds 7 million bpd. The American Petroleum Institute has urged the Commerce Department to ease restrictions, warning of “immediate market disruption.”

The Trade War’s Escalating Stakes

This isn’t the first salvo in the U.S.-China trade spat. In April 2025, President Trump hiked tariffs on Chinese imports to 145%, prompting Beijing to slap 125% levies on U.S. goods, though it initially exempted ethane to protect its plastics sector. However, the Commerce Department’s license requirement, announced on May 23, 2025, and followed by denials of emergency export requests (e.g., Enterprise’s 2.2 million barrels), signals a sharper U.S. strategy to choke China’s supply chains. China retaliated by tightening rare earth mineral exports, critical for tech and defense, escalating tensions further.

Beijing’s dependence on U.S. ethane gives Washington leverage. Unlike propane, where China can turn to Qatar or the UAE, no alternative suppliers exist for waterborne ethane. Long-term contracts and a shortage of Very Large Ethane Carriers (VLECs) lock China into U.S. supply, with 29 VLECs currently in service and Chinese shipyards booked for years. This bottleneck amplifies the impact of U.S. controls, potentially forcing Chinese plants to mothball or close, risking a 1-2% hit to China’s GDP growth, per Bloomberg estimates.

Yet, the U.S. faces risks too. Halting ethane exports could curb domestic oil and gas production, as NGLs are byproducts. A 10% cut in NGL output could shave $5 billion annually from U.S. producers’ revenues, based on 2024 export values. Moreover, redirecting ethane to markets like Thailand or Taiwan, which are eyeing U.S. supply, is constrained by shipping capacity and infrastructure. Ineos, for instance, may divert cargoes to its European plants, but global demand outside China remains limited.

Expert Takes: Navigating the Chaos

Analysts are sounding alarms. “The situation is dire for China’s ethane crackers,” says Manish Sejwal of Rystad Energy. “Without tariff exemptions or new licenses, they may have to stop production or close shop.” Julian Renton of East Daley Analytics adds, “The market disruption could be immediate,” with U.S. producers facing unsold ethane and Chinese firms grappling with cost spikes. Leslie Palti-Guzman from the Center for Strategic and International Studies notes, “China’s calculated move to target U.S. energy exports shows its readiness to weaponize supply chains.”

For investors, the volatility is a double-edged sword. “This is a classic case of supply chain warfare,” says Liza Tobin, a former White House national security adviser now at Garnaut Global. “Both sides are flexing muscle, but the collateral damage hits global markets hardest.” She advises diversifying portfolios away from ethane-heavy firms like Enterprise (EPD.N, $29.50/share, down 1.12% on May 30) and Energy Transfer (ET.N, $15.80/share, down 1.4%). Instead, she points to naphtha-based producers like Saudi Aramco (2222.SR, $7.50/share, up 1.2% on June 5), which could benefit from China’s pivot to alternative feedstocks.

Global Ripple Effects

The ethane crackdown reverberates beyond the U.S. and China. Europe, reliant on ethylene derivatives for packaging and automotive industries, could face supply shortages if Chinese exports falter. In 2023, U.S. ethylene-derivative exports to Asia (excluding China) grew 69% to 2.2 million metric tons, but rerouting ethane to these markets is logistically complex. Canada and Mexico, exempt from U.S. tariffs under trade agreements, may absorb some excess supply, but their demand is a fraction of China’s.

Emerging markets like Thailand and Vietnam, hungry for cheap U.S. ethane, could gain, but scaling up requires years of infrastructure investment. Siam Cement Group’s Long Son cracker in Vietnam, for instance, is reconfiguring to use ethane, but won’t be ready until 2026. Taiwan’s Formosa Petrochemical is also studying ethane imports, but faces the same VLEC bottleneck. These constraints keep China’s plastics industry—and global supply chains—in a chokehold.

Your Money Now: Actionable Tips

1. Diversify Energy Investments: Avoid overexposure to U.S. NGL exporters like Enterprise Products Partners (EPD.N) and Energy Transfer (ET.N), which face revenue risks if ethane exports stall. Consider naphtha-focused firms like Saudi Aramco or Lotte Chemical Titan, which signed a naphtha deal with Aramco Trading Singapore on May 30, 2025. Aramco’s stock, at $7.50/share, offers stability amid the ethane flux.

2. Monitor Chinese Petrochemicals: Stocks like Satellite Chemical and Wanhua Chemical are under pressure, with potential for further declines if ethane shortages persist. However, a tariff exemption or new U.S. licenses could spark a rebound. Keep an eye on China’s foreign ministry statements for clues on trade negotiations.

3. Bet on Alternative Markets: Thailand and Vietnam are emerging ethane buyers. Siam Cement Group (SCC.BK, $6.80/share, up 0.8% on June 5) could rally as its Long Son cracker ramps up. Taiwan’s Formosa Petrochemical (6505.TW, $2.10/share, flat) is a longer-term play if it secures U.S. ethane.

4. Hedge with Commodities: A U.S. ethane glut could depress natural gas prices by 5-10%. Consider shorting natural gas futures (NG1:COM, $2.80/MMBtu on June 5) or investing in gold (XAU/USD, $2,350/oz, up 1.5%), which China may hoard as trade tensions escalate.

5. Track Policy Shifts: The Commerce Department’s review of “strategic” exports could expand to other commodities. Follow Reuters and Bloomberg for updates on license approvals or denials, which could move markets overnight. A Geneva meeting between U.S. and Chinese officials, reported by The New York Times on June 4, 2025, may signal a de-escalation—or further entrenchment.

The Bigger Picture: Supply Chain Warfare

This ethane saga is part of a broader shift from tariff battles to supply chain warfare. China’s rare earth export curbs, pausing 90% of global magnet supply, mirror the U.S.’s ethane controls. Both nations are weaponizing their chokeholds—China on rare earths, the U.S. on ethane—to assert dominance. The New York Times notes that this “new era of trade warfare” risks empty shelves and market volatility, with U.S. imports from China plummeting 20% in April 2025.

For businesses, the math is brutal. Chinese plastics firms, facing a 20-30% cost hike, may pass prices to consumers, stoking global inflation. U.S. producers, unable to sell ethane, could cut drilling, impacting 10% of the $143.5 billion U.S.-China trade market. The interdependence—China needing U.S. ethane, the U.S. needing China’s plastics—makes decoupling painful. As RBN Energy warns, “China cannot replace U.S. propane, and the U.S. cannot replace Chinese demand.”

What’s Next?

The Commerce Department’s ongoing review, flagged on May 30, 2025, could clarify license approvals by July. Energy Transfer’s emergency authorization filing, announced June 5, may test Washington’s resolve. If denied, expect further stock dips for U.S. exporters and Chinese importers. Conversely, a license approval or Chinese tariff exemption—hinted at by S&P Global on April 25—could stabilize markets. Beijing’s earlier decision to lower ethane tariffs to 1% in 2025 suggests it may blink first, given its lack of alternatives.

Investors should brace for volatility. The ethane trade, worth billions, is a litmus test for U.S.-China relations. A prolonged standoff could reshape global petrochemical markets, while a détente could unlock opportunities. Stay sharp with Ongoing Now 24.