Little has been reported about a recent US export licence restriction of ethane to China.
On June
3, the US Department of Commerce’s Bureau of Industry and Security (BIS) announced
the denial of export licence for three ethane cargoes totally to China – a consequence
of a May 23 BIS determination that high-purity ethane exports to China pose a
national security risk.
The ethane export curb is another US exercise in self-harm, which is similar to what the US is doing to the semiconductor industry in China. The latter simply makes China more self-reliant and renders companies like Intel and Nvidia losing billions of dollars of sales.
No
sooner had China and the US concluded a trade war truce in Geneva on May 12 then
this BIS restriction was announced. This is typical Trump – a habitual way of undermining
his own credibility. Trump began to rant that China had violated the
understanding reached in the Geneva talks. Of course, it was a load of rubbish
and China was quick to point out.
What the US had wanted was China’s rare earths. And what China wanted was the US’s undertaking to leave Taiwan alone. But the US is obviously not delivering their side of the bargain. China is, I believe, all prepared to concede much of what the US wants if the latter commits not to interfere with China’s reunification efforts on Taiwan. However, Pete Hegseth’s 31 May speech at the 2025 Shangri dialogue in Singapore must have irked China a great deal. Not again, says China.
In its distorted logic, the US began to dial back its Geneva undertakings, and the ethane export curb is its new salvo.
There is no doubt that the loss of U.S. ethane will hurt China's petrochemical producers. (China has exempted ethane from its earlier reciprocal 125% tariff on U.S. imports.) The curb cuts both ways.
According to an article by Reuters energy columnist Ron Bousso, China absorbs nearly half of all US ethane exports in 2024. If it persists, the viability of weaker producers in the US shale basins will also be at stake. Rejecting this natural gas liquids export also equates to additional volume that has to go back to the US gas stream, which the US consumers do not need.
It is reported that ethane production in the US rose to a record 2.83 million bpd in 2024 and is currently the only major exporter of ethane, as exports rose 13-fold in the decade to 2024 to 492,000 bpd, 46% of which went to China, according to the EIA. Other markets for U.S. ethane exports are India and Thailand, but the shift will not happen quickly. It takes years to build import terminals and ethane carriers.
For China, losing the U.S. ethane feedstock will mean that it needs to rely more on naphtha, which is a pricier feedstock. But this is not a life-threatening blow to China.
I asked ChatGPT to give its takes on the issue. Below is a summary of what it says:
China would need to diversify its ethane import sources. But due to the specialised infrastructure needed for extraction liquefaction, transport and regasification, alternatives are quite limited.
- Qatar and Saudi Arabia are possibilities;
however, much of their ethane is needed domestically for their own petrochemical
production.
- Norway produces small volumes of ethane,
but they are meant for European demand.
- Canada has significant ethane resources,
especially in Alberta. However, it currently lacks large-scale ethane
export infrastructure.
- Brazil exports a small amount of ethane as
a byproduct from its pre-salt gas fields, though this is currently not in
large volume.
- Russia has large natural gas reserves, and
some ethane production capacity. But now it has limited liquefied ethane
export infrastructure.
But I suspect this curb is going to be another TACO event.
We all know on June 5, President Xi Jinping took a phone call from U.S. President Donald J. Trump. Trump has been desperate to speak with Xi for some weeks already. He thought he could win a trade war with China. Obviously, he had been badly advised by a bunch of nincompoops who did not understand the complexity of international trade, especially in supply chains. But never mind the shelves in Walmart are going to be empty in a couple of weeks’ time, never mind the cost of the US’s national debt is going to shoot through the roof, and never mind Elon Musk has walked out, one thing is totally unbearable to him: China’s denial of rare earths to the US.
Without rare earths, the production of the critical industries – automotive, military hardware and semi-conductors, etc in the US will soon come to a standstill.
We do not know what had actually transpired between Xi and Trump during their one-and-a-half-hour talk. Trump was as usual very exuberant about the outcome; however, China’s readout was business-like and centred around its very core interest, i.e., Taiwan.
In their June 5 telephone conversation, Xi has again reminded Trump that the US must handle the Taiwan question with, I quote from its official readout, “prudence, so that the fringe separatists bent on “Taiwan independence” will not be able to drag China and the US into the dangerous terrain of confrontation and even conflict.”
I do not believe this has sunk into Trump completely.
They have agreed that their officials will meet in London on June 9 to reach a good trade agreement. However, I think it is going to be another round of empty undertakings by the US.
China should continue to use the rare earths to hit the US hard, especially when the country is already in the stage of self-imploding. The other weapon that China should use to leverage is their monopoly in the pharmaceutical ingredients. Let Trump bring the US to a grinding halt.
End
