While much of the focus of President Donald Trump’s trade war has been on the United States’ yawning trade deficit with China, the U.S. does have considerable exports going the other way — agricultural products like soybeans, technology products like semiconductors, and fossil fuels and petroleum products.
Those exports are not just actual crude oil, but also petrochemical feedstocks, which are a key input for China’s industrial production and represent a rare area of Chinese dependence on the United States.
To the extent this trade is imperiled by 125% tariffs on U.S. imports to China, put in place after the U.S. applied 145% tariffs to Chinese imports, it will be yet another example of how Trump’s second term could prove ironically disastrous for the oil and gas industry — first by making its inputs more expensive, then by helping sink oil prices, and now by inducing large taxes on American exports.
One of those feedstocks is ethane, which is extracted from natural gas. The U.S.-China ethane trade is relatively new — the first U.S. ethane ship left Morgan’s Point, Texas in 2019. Since then, annual U.S. exports to China have increased from just under 4 million barrels to 83 million barrels in 2024, according to the U.S. Energy Information Administration. U.S. feedstock exports to China have grown up alongside China’s petrochemical industry, to the point where analysts at S&P Global have warned of “overcapacity.”
“The speed and scale of the expansion of China’s petrochemical sector dwarfs any historical precedent,” wrote the International Energy Agency in 2023, noting that planned production capacity increases in China since 2019 for ethylene and propylene were set to match all production capacity in Europe, Japan, and Korea combined.
The U.S.-China trade in petrochemical feedstocks had, until this year, represented the strengths of each respective economy working in sync to buoy global manufacturing. U.S. production of ethane and other liquids had soared thanks to the fracking boom. In turn, China invested heavily in its capacity to process these fuels and churn out plastics for use across its economy — and often in exports back to the United States.
I reached out to a number of companies involved in ethane and propane exports, as well as trade groups for the oil and gas industry to talk about how tariffs are affecting their business. None of them responded.
But it is safe to say that business could soon be starved of key inputs.
“U.S. energy flows to China are done unless Beijing and D.C. come to an agreement,” Gregory Brew, an analyst at the Eurasia Group, told me. “China is already looking to buy more crude from OPEC states to make up for losing U.S. [imports]. NGLs are sure to follow.”
Those “NGLs”, a.k.a.natural gas liquids, including ethane, propane, and butane, are produced as a byproduct of oil and gas drilling and processing and are often used as feedstocks for making plastics. Ethane is converted into ethylene by a high-heat process known as “cracking,” then converted into polyethylene pellets, which find their way into many of the plastic products we use every day. A similar process turns propane, which can be derived from natural gas or crude oil, into polypropylene.
This growing mutual dependence has involved enormous capital investments in both the United States and in China to develop pipeline, storage, cooling and shipping infrastructure. The Chinese ethane processing industry was set to receive some $16 billion in new investment to import and process the gas, Reuters reported in February, while U.S. energy companies were working to expand their export capacity.
When an analyst asked James Teague, the co-chief executive of major pipeline company Enterprise Product Partners, in February about the prospect of tariff retaliation affecting exports to China, Teague noted confidently “those crackers can only use ethane,” and so “from an NGL perspective, I’m not worried.”
The ethane trade is a kind of mirror image of how U.S.-China trade is often thought of. Instead of America depending on China for batteries or rare earths, when it comes to ethane, it’s China that depends on the United States.
Almost half of all United States ethane exports went to China in 2023, according to EIA data, while the analytics firm Kpler put the portion of ethane exports in 2024 to China at 57%, according to figures cited by Reuters. “The United States represented practically all of China’s imports of the feedstock over the past seven years,” the news service reported.
“Chinese petrochemical crackers that use ethane as a feedstock rely exclusively on U.S. volumes,” according to the trade publication RBN Energy. “The tariffs will make U.S. ethane uneconomical, and these facilities will face two choices: absorb the cost or shut down.”
That risk goes both ways: “We see an increasing risk to U.S. export volumes,” wrote Citi analyst Spiro Dounis in a note to clients last week. “Both countries are heavily dependent on each other when it comes to NGLs and tariffs throw a significant wrench into the relationship.” That leaves Chinese importers of ethane with the grim choice of “either shutting in capacity or running at a loss.”
There’s likely a similar story playing out with propane and propylene. Propane exports to China have grown to over 114 million barrels in 2024, compared to just over 6 million 10 years prior, according to EIA data.
The price of propane in the United States has “plummeted” since China imposed its retaliatory tariffs, according to Bloomberg, while Chinese importers of the fuel are “getting gouged by traders taking advantage of their distress.”
“China … will face higher costs and potential shutdowns of [propane dehydrogenation] plants due to increased procurement costs and reduced downstream demand,” Drewry analyst Nisha Manav told me in an email. “This could lead to demand destruction in the country due to reduced operating rates at PDH plants. Alternatively, the U.S. will struggle to find alternative markets, leading to inventory build-ups and lower export opportunities.”
The EIA called our propane specifically in its most recent short term energy outlook, released this month. “We expect that China’s retaliatory tariffs on U.S. goods will have the largest effect on propane,” the report’s authors said. That will likely lead to increased inventories of propane in the United States and lower prices domestically.
Courtesy of Harbinger