Investing.com -- A halt in Chinese imports of U.S. ethane, triggered by reciprocal tariffs, could lead to a sharp drop in ethane prices and strain Permian gas infrastructure, analysts at Bank of America said exploring the potential fallout.
China is the world’s largest ethane importer, but current tariffs make U.S. ethane uneconomic compared to naphtha.
BofA said the issue could be resolved if U.S. president Donald Trump de-escalates tensions or if China grants a waiver, but neither has occurred.
If China stops lifting ethane, producers would be forced to reject it back into the natural gas stream.
While smaller basins such as the Bakken, Rockies, and Midcontinent are near their maximum rejection capacity, BofA said that on the margin, rejection must be from the Permian.
The Permian is already facing gas pipeline tightness through the second half of 2026, and additional rejected ethane would intensify the squeeze.
That could drive Mont Belvieu ethane prices down toward levels set by the Waha gas price rather than Henry Hub parity.
Based on current strip pricing, BofA estimated ethane could fall below 15 cents per gallon, compared to roughly 25 cents per gallon at Henry Hub parity.
The financial impact on integrated midstream firms would be limited, with 5-6% EBITDA downside for most NGL-integrated companies.
Exporters such as Enterprise Products Partners (NYSE:EPD) and Energy Transfer (NYSE:ET) may be protected by take-or-pay contracts, but BofA noted these represent several hundred million dollars in exposure, with Energy Transfer having greater China-linked risk.
“We note that Trump could de-escalate or China could give a waiver to ethane which could eliminate this issue,” analysts at BofA wrote.