U.S. Ethane Export Restrictions and Their Impact on China's Ethylene Industry

Ethylene, often referred to as the "mother of the petrochemical industry," is a critical raw material for chemical production. In late May to early June 2025, the U.S. government announced a licensing approval system for ethane exports to China, targeting two major exporters-Enterprise Products and Energy Transfer-and rejecting Enterprise Products' application for three shipments totaling 2.2 million barrels of ethane. This sudden policy shift has drawn significant attention from the global chemical industry. But how much would U.S. ethane export restrictions actually affect China's ethylene sector?

China: The World's Largest Ethylene Producer and Consumer

In 2024, global ethylene capacity reached approximately 230 million tons per year (t/y), with Asia-Pacific accounting for 40%, North America 25%, the Middle East 18%, and Europe 12%. China, the top producer and consumer, had an ethylene capacity of 55 million t/y and an output exceeding 48.5 million t/y.

China's ethylene production relies on diverse feedstocks:

Naphtha cracking (69%) – The dominant method

Coal/methanol-to-olefins (16%)

Ethane cracking (11%)

Other light hydrocarbons (4%)

By the end of 2024, China had six ethane cracking projects in operation, with a combined ethylene capacity of 6.05 million t/y and an annual output of 5.24 million t/y. Among these:

Two projects used domestic ethane, producing 1.44 million t/y of ethylene.

Four relied on imported ethane, yielding 3.8 million t/y.

In 2024, China imported 4.7 million tons of U.S. ethane, all for ethylene production (3.8 million t/y). This accounted for just 7.8% of China's total ethylene output, indicating that ethane imports play a limited role in China's ethylene industry.

The U.S.: The World's Sole Major Ethane Exporter

Ethane, a byproduct of shale gas, oilfield gas, and natural gas processing, has limited applications beyond ethylene production. Due to logistical challenges (shipping, storage, and infrastructure), only the U.S. has developed large-scale ethane export capabilities.

Globally, ethane supply is concentrated in North America (50%) and the Middle East (35%), with the latter primarily serving domestic ethylene production. The U.S. shale gas boom has made ethane abundant and cost-competitive, leading to 85% of U.S. ethylene being ethane-based.

Economic Advantages of Ethane Cracking

Compared to naphtha or propane cracking, ethane cracking offers:

1) Cost efficiency: U.S. Gulf Coast ethane prices (~$140/ton in 2024) make ethylene production 30-40% cheaper than naphtha-based routes.

2) Lower capital intensity: Ethane crackers require 20-30% less investment than naphtha-based plants.

3) Higher ethylene yield: Ethane cracking achieves >80% ethylene yield, far exceeding naphtha (30-35%).

4) Lower carbon emissions: Ethane cracking emits ~20% less CO₂ than naphtha routes.

U.S. Export Restrictions: A Self-Inflicted Wound?

The U.S. ethane market is oversupplied, with 2024 production at 59.2 million t/y but domestic demand at only 48.3 million t/y. Excess ethane is either reinjected (~17.5 million t/y) or exported (~10.2 million t/y).

China is the largest buyer of U.S. ethane exports (55%), followed by Europe and India. Major exporters like Enterprise Products and Energy Transfer have invested billions in expanding terminals, with new capacities (e.g., Enterprise's 6.2 million t/y Beaumont facility) set to come online in 2025.

Restricting exports would:

Strand billions in infrastructure investments

Force producers to sell ethane at lower domestic prices

Disrupt long-term contracts, triggering penalties

Undermine U.S. energy export ambitions

Impact on China's Ethylene Industry: Limited but Notable

Minimal systemic risk: Ethane-based ethylene accounts for just 7.8% of China's output; naphtha and coal-to-olefins provide alternatives.

Operational flexibility: Most Chinese crackers can switch to propane, butane, or light naphtha if ethane supplies tighten.

Emerging supply options: Other regions (e.g., Middle East, Canada) may ramp up ethane exports, reducing reliance on the U.S.

Short-term challenges:

Fully ethane-dependent plants may face cost pressures.

Profit margins could shrink for some producers.

Conclusion

While U.S. ethane export restrictions will not cripple China's ethylene industry, they could hurt specialized producers and backfire on U.S. energy firms. The move underscores the risks of over-reliance on a single supplier-a lesson China is likely to address through diversification and domestic capacity expansion.