The United States Lifts Restrictions on Ethane Exports to China, and Trade Relations Show Signs of Easing

Recently, the United States announced the lifting of restrictions on ethane exports to China. The related trade business that was previously suspended due to Sino-US trade frictions will be restored, sending a positive signal that the economic and trade relations between the two countries are gradually easing.

According to Reuters on July 2, the US government sent letters to two major energy companies, Enterprise Products Partners and Energy Transfer, on the same day, officially lifting the restrictions previously imposed on their ethane exports to China.

Sources pointed out that in the past, about half of the ethane produced in the United States was exported to China, mainly used as light raw materials to replace naphtha in the petrochemical industry, and is an important source of raw materials for China's ethylene cracking units.

From the end of May to the beginning of June this year, the US government restricted the export of ethane and other energy and chemical products to China on the grounds that "China restricts the export of rare earth products." On June 25, although the US Department of Commerce partially relaxed the relevant restrictions and allowed companies to load ethane products on ships bound for China, it still required that they should not unload at Chinese ports without obtaining additional authorization.

However, as China and the United States recently reached a partial consensus on the export of rare earths and magnetic materials, the restrictions were finally lifted in early July. According to ship tracking data, at least eight ethane carriers have sailed from the U.S. Gulf Coast to China, and these previously stranded goods are expected to be delivered one after another.

Samantha Hartke, an analyst at energy data analysis company Vortexa, said that the lifting of the ban means that ethane exports will gradually return to normal levels, and it is expected that ethane exports to foreign countries in July will return to the seasonal average of about 240,000 barrels/day, close to 257,000 barrels/day in May.

The lifting of this round of ethane export restrictions is not an isolated incident, but part of a series of recent trade coordination efforts between China and the United States. In response to a reporter's question on June 27, a spokesperson for the Ministry of Commerce of China said that based on the important consensus reached by the two heads of state in a phone call on June 5, the China-U.S. economic and trade teams held talks in London from June 9 to 10, and reached a consensus in principle on consolidating the results of the Geneva economic and trade consultations and implementing bilateral commitments.

The spokesperson pointed out: "China will approve qualified export applications for controlled items in accordance with the law, and the United States will also cancel a series of restrictive measures taken against China accordingly. It is hoped that the United States will work with China to further play the role of the China-US economic and trade consultation mechanism, continuously enhance consensus, reduce misunderstandings, strengthen cooperation, and promote the healthy, stable and sustainable development of China-US economic and trade relations."

Reuters commented that the "technical compromise" between China and the United States in specific areas such as ethane exports and rare earth trade indicates that a limited trade "truce" is proceeding as planned.

Ethane is an important byproduct of the US shale gas revolution. Due to its low cost and convenient extraction, it has become an important raw material for the global petrochemical industry. China has imported a large amount of ethane since 2019, and has built a number of ethane cracking projects in Jiangsu, Zhejiang, Guangdong and other places to replace the high-cost naphtha process. Private leaders such as Satellite Petrochemical, Shenghong Holdings, and Hengli Petrochemical have signed long-term procurement agreements with the United States.

When ethane supply is limited, some Chinese chemical plants will have to use backup sources, increasing operating costs. For the United States, China is its largest ethane export market and is also crucial to the balance of its natural gas industry chain. Therefore, although this area is small, it has an amplifying effect on the stability of the two countries' industries. With the lifting of this restriction, ethane exports to China will pick up quickly in the short term, but we still need to pay attention to trade policies and environmental dynamics in the future.