US Ethane Exports at Risk after Enterprise Reveals Cargo Denials

Ethane exports from the United States appear set to take a big hit because of a new licensing regime introduced by Washington to regulate shipments to China.

Enterprise Products Partners confirmed in a statement on the afternoon of June 4 that the U.S. Department of Commerce’s Bureau of Industry and Security on June 3 issued a “notice of intent to deny” the company’s emergency authorization requests for licenses to send three ethane cargoes totaling approximately 2.2 million bbl to China.

Enterprise has up to 20 days to submit comments and rebuttals, but BIS has 45 days to respond. If no such response is issued by the 45th day, “these denials will become final without further notice,” Enterprise said.

The news came after live tracking provided by the VesselFinder site earlier on June 4 showed the very large ethane carrier Gas Changjiang departed Enterprise’s Morgan’s Point docks on the Houston Ship Channel, indicating India as its planned destination.

The ship’s beneficial control vests with Wanhua Chemical of China, and it would have normally been expected to head to China. But preliminary destinations signaled by ship captains can often be placeholders, and this vessel’s actual plans would not be clear until it is further along its journey and seen headed either toward the Panama or Suez Canals.

Enterprise did not respond to an earlier OPIS email seeking details on Gas Changjiang’s voyage plans.

Two other theoretically China-bound VLECs remain moored at Gulf Coast terminals since last week—INEOS-operated Pacific INEOS Grenadier at Morgan’s Point, and Satellite Chemical-operated STL Qianjiang at Energy Transfer’s docks in Nederland, Texas, 100 miles east of Houston.

Reliance Industries-operated VLEC Ethane Crystal, which has conducted milk runs to India since the mid-2010s, also docked at Morgan’s Point on June 4.

BIS in a May 23 letter mandated that exporters of ethane and butane to China would have to apply for licenses. In a May 29 Form 8-K filing with the U.S. Securities and Exchange Commission, Enterprise said this requirement was based on a BIS determination that “such exports, reexports, or transfers (in-country) pose an unacceptable risk of use in or diversion to a ‘military end use’ in China or for a Chinese ‘military end user,’ with a specific concern for their use in China’s military-civil fusion strategy.”

In a separate Form 8-K filing on June 4, Energy Transfer echoed the same comments. The company added that it also intends to file for an emergency authorization, like Enterprise’s unsuccessful effort.

The BIS requirement is likely to have minimal impact on butane exports. Energy Information Administration data for 2024 show China took in 5.3% of U.S. normal butane exports, or 26,000 b/d out of 491,000 b/d. Butane is a fungible commodity, and analysts believe the small slice of U.S. exports to China would find other buyers without much trouble. China has access to other exporters, mainly in the Middle East, to make up this gap.

The picture is different for ethane.

The only use for this commodity is as a feedstock in petrochemical crackers that produce ethylene, a plastics industry building block. China has invested billions of dollars over the last decade in sophisticated ethane-only steam crackers that are conceived on the assumption of cheap and plentiful U.S. barrels to feed them.

EIA data for 2024 show China accounted for 46.1% of U.S. ethane exports, or 227,000 b/d out of a record 492,000 b/d.

Total U.S. production runs to around 2.8 million b/d. Domestic demand, mainly from petrochemical plants along the Gulf Coast, is 2.1 million-2.2 million b/d, which makes rising exports an important component to keep the domestic market in equilibrium.

The United States is the world’s only ethane exporter of substance, which means China has nowhere else to turn if the new Commerce requirements make these volumes difficult or impossible to source. But America’s problem is that other importing countries do not have the steam cracker infrastructure to absorb displaced Chinese demand.

Because of this, some analysts believe the curbs placed last week could be another “negotiating tactic” employed by the Trump administration in broader trade negotiations with China.

Two suppliers stateside handle most of the waterborne ethane business—Enterprise and Energy Transfer. Conventional wisdom holds that Energy Transfer would be most affected by any disruption to these flows, since Satellite Chemical of China is the anchor lifter from Nederland with a multi-year commitment to lift up to 150,000 b/d. Some flows from Energy Transfer’s Delaware River terminal in Marcus Hook. Pa., also go to China.

Enterprise counts Reliance Industries among its anchor lifters. Flows to India, which roughly amount to 15% of U.S. exports, will not be affected by the Commerce regime. But Enterprise is understood to be quietly adding Chinese buyers as well. This push is supposed to align with the impending startup of Enterprise’s new ethane dock in Beaumont, Texas, adjacent to Nederland.

According to a news article from OPIS Asia on May 29, Wanhua notified the Shanghai Stock Exchange that it was taking one of its steam crackers in Yantai, in Shandong province in northeast China, offline for five months beginning June 3 to switch the feedstock configuration from propane to ethane.

Wanhua has also started to build an in-house VLEC fleet that presumably would haul its feedstock from the United States. But whether Enterprise is the contracted long-term supplier has not yet been announced.

Chinese petrochemical majors SP Chemical and Satellite already import U.S. ethane. Wanhua, Ningbo Huatai and Sanjiang Fine Chemical were tipped to join the importers’ club before the tariff turmoil started in early April.

In addition to the financial fortunes of Enterprise and Energy Transfer, a niche shipping sector stands to be affected if uncertainty on ethane exports snowballs into disruptions.

Ethane cargoes need to be chilled to lower temperatures than propane and butane, and cannot be handled by the world fleet of roughly 400 very large gas carriers that transports the latter two liquids. Instead, ethane is serviced by a special class of vessel—the very large ethane carrier, with a generic cargo capacity of roughly 900,000 bbl. There are roughly 25 VLECs in service, and shipbroker reports show dozens more on order.

Like VLGCs, VLECs are designed to fit inside the Panama and Suez Canals while maximizing cargo capacity, which minimizes per-unit transport cost. Reliance and Satellite both operate fleets of in-house VLECs dedicated to their own cargoes, and Wanhua’s ships have started being delivered.

Only docks in China and India can accommodate VLECs, which would create problems for potential re-routings of U.S. cargoes to markets in Europe. This suggests route resets like the ones seen for VLGCs loaded with propane during tariff disruptions in 2018-2020 might not be that easy to achieve for VLECs.

Movements of the STL Qianjiang in Nederland could be a precursor of this dilemma. This VLEC is committed to milk runs to Satellite’s operations in China. After arriving in Nederland around May 26 to load an ethane cargo, it has loitered in port, occasionally changing berths, but had not sailed as of June 4.

Spot markets reacted negatively to the Enterprise announcement. Ethane traded out of Enterprise caverns in Mont Belvieu, Texas, used as an export benchmark, had weakened by nearly 14% since May 28, from 23.875cts/gal to an implied average of 20.5625cts/gal on the morning of June 4. The price subsequently dropped to an intraday low of 18cts/gal after news of the cargo cancellations.

Trading opened Thursday at 17.25cts/gal. Though the price recovered to 19.25cts/gal by midmorning on June 4, the indicative full-day average at that point still reflected a 23.6% drop from the day the BIS requirement first became known.

–Reporting by Rajesh Joshi, rjoshi@opisnet.com; Editing by Jessica Marron, jmarron@opisnet.com

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