A new U.S. policy will cut ethane trade by a quarter in 2025 and by a half in 2026, the U.S. Energy Information Administration (EIA) reported June 10.

The policy directly affects midstream companies Energy Transfer (ET) and Enterprise Products Partners (EPD).

In May, the U.S. Bureau of Industry and Security (BIS), part of the Commerce Department, notified companies that ethane and butane played a large role in creating end-use items for China’s military, and the export of the NGLs posed an unacceptable security risk.

About half of U.S. ethane production goes to China, and Enterprise and Energy Transfer are the only two companies exporting to the nation. All of China’s ethane exports come from the U.S.

The government now requires permits to continue trading.

“We have reduced our forecast of U.S. ethane exports by 24% to 410,000 bbl/d in 2025 and by 51% to 310,000 bbl/d in 2026 compared with last month’s [Short-Term Energy Outlook],” the EIA’s report said.

Ethane has played a continuing role in the White House’s ongoing trade battle with China. Following Trump’s “Liberation Day” on April 2, China had vowed to implement a new 125% tariff on U.S. goods. Ethane was one of the few commodities the Chinese leadership decided the country could not do without, and thus canceled the tariff.

The production of ethane will most likely fall overall, as producers will choose not to separate the chemical from natural gas if another trade outlet fails to pick up the slack.

Both EPD and ET have publicly discussed the impending trade stoppage through Securities and Exchange Commission (SEC) filings, while otherwise not discussing the issue with the media.

On June 3, Enterprise announced that the BIS had refused emergency requests to ship three ethane cargoes to China, totaling approximately 2.2 MMbbl. The company has until June 23 to respond to the BIS decision.

Energy Transfer also notified the SEC on June 3 that it had received the notice from the BIS and was considering further steps.

On June 6, at least seven vessels with ethane cargoes originally destined for China were holding their position along the Gulf Coast, Reuters reported.

Several analysts said restricting the ethane trade is only a leverage move in an ongoing trade battle with China. In April, China restricted exports of seven rare-earth metals to the U.S. The White House responded in May with the ethane restrictions, as well as restrictions on software and jet engines.

Negotiators could also remove the restrictions quickly if needed, as President Donald Trump has given his negotiators the power to do so, the Wall Street Journal reported on June 10.

For now, the only two U.S. companies that export will have to consider their options for a sudden surplus of ethane.

“Enterprise and Energy Transfer don’t have many alternatives aside from leaving the ethane in the gas stream,” said Julian Renton, an analyst for East Daley Analytics. “There’s approximately 60 days of storage capacity available if all the ethane were to be diverted into storage.”

Most likely, ethane and butane will remain in the wet natural gas produced regions of the Anadarko and Rockies basins, Renton said. However, ethane from the Permian Basin, the primary producer of the NGL, will most likely be minimal.

“Gas egress out of the Permian Basin is extremely tight, and most of the ethane supply is produced there,” Renton said. The lack of natural gas capacity, coupled with available NGL capacity, means that companies will most likely keep separating ethane in the Permian.

In that case, Enterprise has an extensive network at both ends of the line for ethane that it can use to its advantage.

“They can recover ethane in the Permian, transport it to the Gulf Coast and reblend it into the gas stream further downstream,” Renton said. “This allows them to effectively capture the spread between Waha and Houston Ship Channel pricing.”

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