A potential suspension of U.S. ethane imports by China, driven by escalating trade tariffs, could spark a significant decline in ethane prices and put added pressure on Permian Basin gas infrastructure, according to analysts from Bank of America.
Currently the largest importer of ethane worldwide, China finds U.S. ethane less competitive against alternatives like naphtha due to existing tariffs. Despite the possibility of a resolution through trade negotiations or waivers, neither the Biden administration nor Chinese authorities have taken action so far.
Should Chinese imports come to a standstill, American producers would have little choice but to reintegrate excess ethane into the natural gas stream. Smaller basins such as the Bakken, Rockies, and Midcontinent regions have already reached or are close to reaching their maximum ethane rejection capabilities. As a result, the Permian Basin would be forced to absorb most of the overflow.
The situation could worsen existing pipeline congestion in the Permian, which is already expected to persist through the second half of 2026. If rejected ethane continues to build up, it would likely push Mont Belvieu ethane prices downward, possibly aligning more closely with the lower Waha gas pricing rather than maintaining parity with Henry Hub benchmarks.
According to BofA’s projections based on current futures pricing, ethane prices could plunge to under 15 cents per gallon, a steep drop from the roughly 25 cents per gallon typically aligned with Henry Hub rates.
For companies involved in midstream operations, the financial hit would be relatively contained, with an estimated EBITDA decrease of about 5-6% for firms heavily exposed to natural gas liquids (NGLs). Export giants like Enterprise Products Partners (NYSE:EPD) and Energy Transfer (NYSE:ET) may have some protection thanks to take or pay agreements, but Bank of America analysts warned that the contracts still leave several hundred million dollars at risk, especially for Energy Transfer, which has a higher degree of exposure to China.
“Both a potential easing of trade tensions by the U.S. administration and waivers from China could remove this looming risk,” the analysts concluded.
