Ethane's global surge: Cost-driven investments meet trade war risks and export bottlenecks

Ethane’s cost-competitiveness continues to drive significant global investments, as the petrochemical industry increasingly prioritizes high-margin feedstocks. The US, emerging as the world’s leading ethane exporter following the shale-gas revolution, supplies over half of its ethane to China, which, in turn, depends almost entirely on US imports under the shadow of looming trade war.

While demand is surging not only in China but also across Southeast Asia and India, the industry faces critical challenges, including limited US export capacity and a shortage of specialized tankers, which could stall this momentum.

Why is the importance of ethane growing?

Cost-advantage

Ethane is typically less expensive than naphtha, which is another common feedstock for petrochemical production. This cost efficiency stems from ethane’s abundant supply, especially in regions with significant natural gas production like the US. Additionally, ethane-based production tends to have lower operating costs due to more efficient cracking processes, resulting in higher yields of valuable products like ethylene. Ethane-based crackers in China generate higher profit margins than naphtha-based alternatives, with earnings of $300-$500 per ton of ethylene produced, Cheryl Liu, an analyst at consultancy Energy Aspects said to Reuters.

C-MACC data also indicates that US-imported ethane significantly lowers the integrated cash cost of ethylene in Asia, offering a cost advantage of more than double compared to Asian naphtha.

Weaker margins in petchem industry

Petrochemical companies are facing declining profits as weak margins continue to weigh on the industry. A surge in global production, particularly in China, has led to excess supply, outpacing consumption growth. The combination of oversupply and sluggish demand has been pressuring profitability, leading to asset sales and closures.

In Europe, weak ethylene margins and disappointing derivative demand led companies like ExxonMobil, Sabic, Dow, Shell, BASF and Versalis to shut down or plan the closure of some crackers in the region.

In Southeast Asia, major producers have been forced to suspend operations or reduce run rates due to persistently weak margins amid expensive heavy naphtha feedstock, weak demand, and an oversupplied market.

Thus, ethane emerges as key to boosting petrochemical margins - you can produce the same products much cheaper. This cost advantage helps recover margins in an oversupplied market facing plant closures.

SCG shuts brand new complex amid weak margins, turns focus to ethane

As an important example of profitability issue, Siam Cement Group’s (SCG) Long Son complex in Vietnam can be shown, which reached on-spec production in December 2023 and started commercial production in January 2024 as the country’s first integrated petrochemical facility, producing PE, PP, and basic chemicals. However, it remained shut from February to August due to multiple technical issues. In mid-October, the complex was shut down again due to rising production costs and lower chemical margins. Indeed, the company reported a net loss in every financial quarter of 2024, mainly due to expenses of the complex. Thus, the company is expected to keep operations suspended until 2026.

The financial challenges and operational inefficiencies have prompted SCG to explore alternatives for growth. The company unveiled plans for an ethane feedstock project to upgrade its complex during the suspension period. The project aims to lower production costs and is expected to be completed by the end of 2027. SCG recently secured a long-term agreement with an affiliate of Enterprise Products Partners to source 1 million tons/year of ethane from the US for 15 years.

One could even venture to speculate the Long Son complex may remain shut until the new ethane project is completed if current circumstances persist.

Bizarre conundrum of US ethane with China

Needless to mention, China is the biggest buyer of ethane globally. Along with its new and huge investments, China is at the same time emerging as one of the top sellers of polymers in the global scene. However, some of these new cracker investments rely heavily on US ethane. According to Reuters, China’s ethane imports from the US are projected to grow between 9% and 34% in 2025. The agency forecasts a 520,000 barrels/day increase in US ethane exports in 2025, with China expected to absorb most of this growth.

Chinese petrochemical companies, including Satellite Chemical, Sanjiang Fine Chemical, and Wanhua Chemical, are also investing over $16 billion in crackers, plant upgrades, and storage facilities to enhance ethane processing efficiency. Satellite Chemical (STL) plans to charter up to ten of the world’s largest ethane carriers to transport US ethane to China.

In return, the US makes almost half of its ethane exports to China, its biggest customer. In the first half of 2024, China accounted for 45% of US ethane exports, according to data from the US Energy Information Administration (EIA). That is to say, this is not a one-sided trade as the US also needs China to sell its abundant ethane supplies particularly after the “drill baby drill” policy is put into effect along with Trump II at the office.

This picture - where the US needs to get rid of excess ethane supplies through exports and China heavily depends on the US ethane - would not get any bizarre and pose any problem for either party if the trade war and looming tariffs between the US and China were not on the table.

Will China’s ethane imports from the US take a knock?

Industry experts put forth that ethane remains a low-risk target for tariffs, as China relies on affordable feedstocks to support its petrochemical sector and is highly likely to avoid extending retaliatory tariffs on US imports of LPG and ethane for now. China already lowered its ethane import tariff from 2% in 2024 to 1% in 2025, further encouraging imports from the US.

Some also highlighted that although China imposed tariffs on these petrochemical feedstocks in 2018, which changed trading patterns, the overall market was not significantly affected.

India remains a big buyer for US ethane

Right after China, India has also been ramping up efforts to ship US ethane for new projects. ONGC is seeking joint venture partners to build very large ethane carriers (VLECs) to transport feedstock for its petrochemical plant.

Additionally, state-owned GAIL plans to invest in an ethane cracker and derivative plants in Madhya Pradesh. India Times reports that GAIL may build very large ethane carriers (VLECs) to switch to imported ethane, following Reliance Industries (RIL).

RIL has been importing US ethane since 2016 via Enterprise Products’ (EPD) Morgan’s Point terminal and is now expanding its fleet, adding three VLECs to its existing six.

Moreover, Nayara Energy plans to build a 1.5 million tons/year ethane cracker at its refinery in Vadinar, Gujarat. Bharat Petroleum is investing nearly $6 billion in a similar ethane cracker project at its Bina refinery.

Europe to welcome first cracker after long years to use ethane as a feed

Around a decade ago, INEOS started to import ethane from the US to use it in its Rafnes cracker in Norway. ExxonMobil and Shell JV have also been using US-imported ethane at their crackers in Mossmorran, UK.

Now, INEOS is well on track to bring a new ethane cracker online in 2027 with a huge capacity of 1.2 million tons in Antwerp, Belgium. This will be the first cracker to be built in Europe, which has been grappling with a deepening structural crisis for so many years. The start-up of the cracker may also speed up the plant closures planned across the bloc.

Brazil and South Korea follow suit

In Brazil, Braskem has launched the first vessel in its dedicated fleet for transporting naphtha and ethane, reinforcing its supply chain and reducing freight costs. The company will increase its use of domestic ethane from Petrobras, reducing reliance on naphtha, which has become less competitive due to higher costs.

In South Korea, where an the urgent need for structural reforms is called given major profitability problems, a “fast-track” approval process will be introduced for ethane terminal and storage tank construction, ensuring easier access to lower-cost feedstocks.

The next hurdle: Lack of Very Large Ethane Carriers (VLECs)

Investments in new ethane-based crackers reflect the industry’s drive for higher profitability, but challenges persist. Apart from the trade war the US has kicked off in global markets intensifying uncertainty, limited US export infrastructure is restricting ethane trade growth, pushing companies to expand terminal capacity.

Transporting ethane relies on Very Large Ethane Carriers (VLECs), yet high costs of $160-$170 million per vessel and lengthy construction times of three years are constraining availability. Fully booked Chinese shipyards are further delaying new capacity. With rising demand and restricted shipping capacity, the ethane market is expected to tighten by 2026.

At least three projects are underway for more than 10 giant ethane carrier newbuilds to serve buyers in China, Thailand, and India. AW Shipping, a joint venture between ADNOC L&S and Wanhua Chemical, has placed $1.9 billion in shipbuilding contracts with China’s Jiangnan Shipbuilding for nine VLECs and two very large ammonia carriers (VLACs).