Trade War Diverts U.S. Petroleum Gas Cargoes, Upending Global Markets

The escalating U.S.-China trade war has reshaped global energy markets, with liquefied petroleum gas (LPG) and propane trade volumes between the two nations collapsing under the weight of retaliatory tariffs. As tariffs on U.S. exports to China now exceed 100%, the once-vibrant trans-Pacific LPG trade—worth over $1 billion monthly—has become a casualty of geopolitical tensions. Meanwhile, China’s petrochemical industry faces existential risks from its reliance on U.S. ethane, a feedstock with no viable alternative.

Propane: A Costly Game of Rerouting

In 2024, the U.S. supplied 35% of China’s LPG imports, with propane shipments reaching 311 million barrels per day (Mb/d). But tariffs have turned this relationship into a financial drain. By April 2025, China’s retaliatory tariffs on U.S. propane hit 84%, inflating landed costs to $176.5/c gallon—a 67% increase in propylene production costs. To offset this, U.S. propane prices at the Mont Belvieu hub plummeted to $73.9/c gallon by April 2025, forcing exporters to redirect supplies to Europe and India.

Enterprise Products, a key U.S. LPG export terminal operator, saw its stock decline by 18% year-to-date as tariff risks and storage overflows pressured its business model. European buyers, however, are now securing discounted U.S. propane, while Indian refiners may emerge as new customers if prices fall further.

Ethane: A Vulnerability with No Safety Net

The stakes are even higher for ethane. China relies entirely on U.S. ethane for its ethylene crackers, importing 227 Mb/d in 2024. With U.S. ethane priced at $27/c gallon pre-tariff, China’s 125% retaliatory tariffs now push landed costs to $76/c gallon—far exceeding the cost of naphtha-based ethylene production. This threatens to idle 22 million tonnes/year of PDH capacity, crippling polypropylene output and disrupting global plastics supply chains.

No alternative ethane suppliers exist, as no other country exports waterborne ethane. China’s petrochemical firms face a grim choice: absorb unsustainable costs or halt operations, risking stranded assets and job losses.

Broader Market and Policy Implications

1. Trade Collapse and Market Dislocation: The U.S. propane export surplus has driven prices to decade lows, while Chinese buyers face a $770/tonne loss on U.S. propane without drastic cost adjustments.
2. Industry Outlook: China’s PDH capacity expansion plans—projected to add 25 billion pounds/year by 2030—now hinge on resolving trade disputes. Without U.S. ethane, China may pivot to naphtha, a costlier but flexible feedstock.
3. Geopolitical Shifts: The U.S. is diversifying markets, while China seeks Middle Eastern LPG, though at fourfold premium prices. This rerouting is exacerbating global energy inflation.

Conclusion: Navigating the Turbulence

The trade war’s impact on petroleum gases is a stark reminder of how geopolitical friction distorts commodity markets. Investors should monitor three critical metrics:
- U.S. ethane prices: A sustained drop below $30/c gallon could keep Chinese crackers operational, but further tariff hikes would trigger shutdowns.
- Enterprise Products (EPD) stock: Reflects the viability of U.S. LPG export infrastructure under tariff pressures.
- China’s ethylene production rates: A drop below 20 million tonnes/year would signal systemic disruption in its petrochemical sector.

The path forward is fraught with uncertainty. Unless tariffs are reduced, the U.S. may face prolonged LPG oversupply, while China’s petrochemical sector risks irreversible damage. Investors in energy and petrochemical stocks must prepare for prolonged volatility—and the possibility of a restructured global trade order.

The XLE’s -12% decline in 2025 underscores the sector’s sensitivity to trade disruptions, a trend likely to persist unless diplomatic solutions emerge.