US Propane Exports at a Crossroads: Navigating China's Petrochemical Shift and Strategic Opportunities

The recent US-China trade truce has bought a temporary reprieve for propane exporters, but the underlying risks of prolonged trade friction loom large. With China's petrochemical sector—a major buyer of US propane—under pressure to diversify supply chains, energy investors face a critical decision: pivot to resilient sectors or brace for a potential collapse in export demand. This analysis explores the vulnerabilities of US propane exports, the economics driving China's shift, and where investors can find shelter in this shifting landscape.

The PDH Petrochemical Pivot: China's Reliance on US Propane

China's petrochemical industry has become a linchpin for US propane exports. In 2024, China imported 17.3 million tons of propane, with nearly 59% sourced from the US, fueling its propane dehydrogenation (PDH) plants. These facilities produce propylene, a key feedstock for plastics and synthetic rubber. East Daley Analytics estimates that PDH units now account for 32% of China's propylene capacity, underscoring the sector's strategic importance.

However, the trade war's tariff hikes—peaking at 125% on both sides—have created a precarious balance. While the May 2025 truce reduced tariffs to 10% for 90 days, the threat of escalation by August 2025 remains. Propane exporters like Enterprise Products (EPD), Energy Transfer (ET), and Targa Resources (TRGP) face a stark reality: one-fifth of their export revenue relies on China, a market now weaponized in trade disputes.

The Tariff Threat: How Trade Friction Could Tip the Scales

The truce's fragility is compounded by structural challenges. Propane, a byproduct of oil and gas production, cannot easily be curtailed, creating a “produce or perish” dynamic. With US propane inventories already below year-ago levels, any slowdown in exports could force prices down—a risk amplified by Middle Eastern competitors.

Arab Gulf producers, such as Saudi Arabia and Qatar, offer cheaper, tariff-free propane, leveraging their proximity and lower production costs. Meanwhile, Canada—already a $2 billion annual supplier of LPG to the US—could pivot to China if US exports falter. This competition threatens the $3 billion annual revenue stream that US Gulf terminals like Enterprise's Neches River facility (360,000 b/d capacity) rely on for growth.

Diversification Dilemmas: Can the US Compete with Middle Eastern Suppliers?

The answer hinges on PDH plant economics. China's PDH operators face a cost-benefit analysis: paying tariffs on US propane or importing cheaper Gulf supplies. The math is stark. Middle Eastern propane arrives at Chinese ports $0.10/gallon cheaper than US Gulf propane, even after transport. If tariffs remain elevated, this gap could widen, triggering a shift to alternative suppliers.

For US exporters, the stakes are existential. A 20% drop in Chinese demand—possible if tariffs remain—could erase $600 million annually from EPD's propane export revenue alone. With projects like the Texas City Logistics terminal (400,000 b/d capacity by 2028) already overleveraged, delays or cancellations could follow.

Investment Implications: Navigating the New Energy Landscape

Vulnerable US Energy Firms: EPD, ET, TRGP

The stocks of terminal operators are already pricing in risk. Over the past year, Enterprise Products (EPD) has underperformed the S&P 500 by -18%, while Energy Transfer (ET) and Targa Resources (TRGP) lag by -25% and -30%, respectively.

These companies face a double threat: overcapacity from planned terminals and demand destruction from China. Investors should proceed with caution unless the trade truce is extended beyond August 2025.

Strategic Opportunities: Arab Gulf, Canadian Propane, and US Infrastructure

• Arab Gulf Producers: Companies like Saudi Aramco and Qatar Energy stand to benefit as China diversifies. Look for plays in LNG exporters with LPG co-products.
• Canadian LPG: Canadian exports to China could surge. Investors might consider Canadian energy infrastructure firms like Pembina Pipeline (PBA) or TransCanada (TRP).
• US Resilient Infrastructure: Focus on terminals with diversified customer bases (e.g., refineries, domestic consumers) or those expanding into renewables (e.g., hydrogen hubs).

Hedging Strategies for Investors

• Short Propane Exporters: Use put options on EPD or ET to bet on a China demand collapse.
• Long Middle Eastern Energy Stocks: Exposure to Gulf producers via ETFs like the iShares MSCI Saudi Arabia ETF (SAUL).
• Diversify into Petrochemical Alternatives: Invest in companies like Dow Chemical (DOW) or Formosa Plastics (FP), which are less reliant on US propane imports.

Conclusion: Positioning for the Post-Trade Friction World

The US-China truce has delayed, but not resolved, the propane trade's fragility. Investors must recognize that China's PDH sector will not tolerate indefinite tariff volatility. Opportunities lie in Middle Eastern and Canadian suppliers, while US terminals face a high-risk, low-reward path.

Act now: reduce exposure to EPD, ET, and TRGP, and pivot to resilient sectors. The next 90 days will test whether the truce matures into a lasting deal—or becomes a prelude to a supply chain reshaping that redefines energy markets for years.