*

Satellite Chemical is China's biggest importer of US

ethane

*

Project paused amid trade tensions, lack of government and

regulatory approvals

*

Ethane cracker is part of multibillion-dollar expansion

plan

By Trixie Yap and Chen Aizhu

SINGAPORE, Oct 24 (Reuters) - Satellite Chemical

, China's largest importer of U.S. ethane, has paused

plans to build its third ethylene unit amid protracted

U.S.-China trade tensions and a lack of required government and

regulatory approvals, five industry sources said.

The new cracker, costing roughly $1 billion and with a

capacity of up to 1.5 million metric tons per year (tpy) would

process ethane into ethylene, a key petrochemicals building

block. It is part of the company's multibillion-dollar phase 3

expansion in Lianyungang, a city in eastern China.

China buys half of U.S. ethane exports and secures nearly

all of its ethane imports from the U.S. The delay demonstrates

the potential pitfalls of the country's growing reliance on U.S.

ethane.

The pause, which two sources said occurred around June,

followed escalation in the U.S.-China tit-for-tat trade war in

April, when Beijing slapped a 125% duty on U.S. goods including

ethane, before waiving it later in the month. In late May, the

U.S. imposed temporary restrictions on ethane exports after

accusing Beijing of slowing rare earths shipments.

Satellite was about to start construction of the new cracker

after almost completing construction of at least one

petrochemical derivative unit in Lianyungang in the second

quarter, two of the sources said.

However, the company was ordered by the central government

to halt construction as Beijing was worried that rising demand

for U.S. ethane could hand Washington additional leverage amid

trade tensions, three sources added.

In addition, authorities found that Satellite did not

have necessary regulatory approvals for the cracker, having only

been given a green light for the downstream units, two sources

said.

The sources declined to be identified as the details are not

public.

Satellite, in response to a query about the government pause

order and the status of regulatory approval, said the "company

consistently abides by Chinese law and applicable global

regulations."

Satellite told Reuters it would provide updates on any

progress on its projects via stock filings.

China's National Development and Reform Commission,

responsible for approving large industrial investments, did not

respond to a request for comment.

In an October 15 client note, JPMorgan analysts said

Satellite may have to wait until U.S.-China trade relations

stabilise to resume building the third cracker, which would

delay the entire phase 3 expansion that had been slated for

start-up in the first half of 2027.

OTHER PROJECTS CONTINUE

Satellite is expected to proceed with several downstream

projects, such as alpha-olefin and polyolefin elastomer (POE)

units that make high-performance plastics used in automobiles,

and packaging, three of the sources said.

Key units under the phase 3 project include two 500,000-tpy

polyethylene units, five 100,000-tpy alpha-olefin units and

three 200,000 tpy of POE facilities, Satellite said in a stock

filing in mid-2024.

Satellite was one of the earliest Chinese companies to

process abundant and cheap U.S. ethane - a by-product of natural

gas production - into ethylene.

It operates two such crackers capable of producing 2.5

million tpy of ethylene combined, making it the world's largest

single importer of U.S. ethane. Compared with oil-based

technology, ethane is more cost-efficient and lower in

emissions.

To secure feedstock, Satellite invested in a

180,000-barrel-per-day terminal in Nederland, Texas, in a joint

venture with U.S. firm Energy Transfer ( ET ) in 2018.

Satellite and Energy Transfer ( ET ) also agreed a supply deal with

annual shipments of over 3 million tons of U.S. ethane that

lasts through 2030.