SINGAPORE (Reuters) - Despite a growing trade war between Washington and Beijing, China's ethane imports from the U.S. are set to surge this year as big petrochemical producers battling shrinking profits switch to the cheaper feedstock flowing from the U.S. shale gas boom.

Companies including Satellite Chemical, China Sanjiang Fine Chemical, and Wanhua Chemical Group are investing more than $16 billion to build crackers, upgrade plants, expand storage, and construct Very Large Ethane Carriers to ship the liquefied gas.

U.S. export capacity and a lack of tankers are the two factors holding back growth in the ethane trade between the world's two biggest economies. Nearly all of China's ethane imports come from the U.S.

Forecasts from three analysts for China's ethane imports in 2025 range between 6.3 million and 8.2 million metric tons, which they estimate would amount to an increase of between 9% and 34%. There is no official data publicly available on ethane imports.

To meet the rising export demand, U.S. pipeline network operators Energy Transfer ( ET ) and Enterprise Products Partners ( EPD ) are expanding capacity at their terminals.

"The bottleneck is U.S. exports right now," said Armaan Ashraf, head of natural gas liquids at consultancy FGE.

China buys nearly half of U.S. ethane exports, according to the U.S. Energy Information Administration, which sees U.S. net ethane exports rising 6% to 520,000 barrels per day (11.2 million tons) in 2025, it said in an October report. China is expected to take most of that increase, an EIA analyst said.

In competition with China, Thailand plans to buy more U.S. ethane to reduce its trade deficit with the United States, while Siam Cement Group is re-configuring its new Long Son cracker in Vietnam to use the cheaper feedstock. Taiwan's Formosa Petrochemical, the region's largest naphtha importer, is also studying importing U.S. ethane for its crackers, its spokesperson KY Lin told Reuters.

The growing demand and constrained export capacity will result in a tight ethane market from 2026, said Wang Yan, an analyst at commodities intelligence firm ICIS.

NEW CRACKERS AND SHIPS

Between 2024 and 2026, Chinese companies plan to add at least 7.7 million tons per year (tpy) of capacity to process ethane and other gas liquids, company filings show, as they look to take advantage of the cheaper feedstock.

They need to make the switch to improve their returns. Crackers in China processing ethane can reap $300-$500 per ton of ethylene produced, beating the profit margins at plants processing naphtha, said Cheryl Liu, an analyst at consultancy Energy Aspects.

Sanjiang Chemical said in its first-half 2024 financial report that the start-up of its mixed-feed cracker cut its costs by a fifth and flipped its loss-making ethylene oxide/ethylene glycol production to profit.

Along with plant upgrades, new shipping capacity is required. For every one-million tons per year in cracking capacity, at least six dedicated VLECs are needed to ship the feedstock, Ashraf said.

A VLEC costs $160 million-$170 million and takes three years to build, said executives at Japan's IINO Lines. The operator has leased its first two VLECs to be completed this year to privately-owned UK group Ineos to send U.S. ethane to China.

Wanhua Chemical, which has three VLECs, will add another two to three tankers by the end of the year, said a source familiar with the matter who declined to be named as he is not authorised to speak to media.

"The main constraint is shipping," he said, as Chinese shipyards are fully booked over the next few years.

He estimated there are 29 VLECs in service and expects China's demand growth to track new ships coming on.

"There is lots of demand, but lots of vessels also coming. And since the main importers will be China and exporter (is) U.S., there is the political issue between the U.S. and China. So we have to be careful of that," the LNG team of IINO Kaiun Kaisha ( IIKKF ) said in an email response to Reuters.

However, some analysts and Enterprise CEO Jim Teague played down the likelihood of ethane being affected by the tit-for-tat tariffs between Beijing and Washington, as China would prefer to keep feedstock cheap to support industry.

"The whole segment is not doing very well. There are always other sectors that they can tap down on when it comes to trade war," said FGE's Ashraf.

China lowered its import tariff for ethane in 2025 to 1% from the 2% in 2024.

Teague said Chinese propane and ethane users are dependent on imports. "So from an NGL perspective, I'm not worried," he told analysts on Feb. 4, referring to natural gas liquids.

Gearing up for the surge, Enterprise plans to open a terminal in Orange County, Texas, in the second half of this year to export 120,000 bpd of ethane and aims to expand that in 2026.

Energy Transfer ( ET ) said it would add 250,000 bpd of natural gas liquids export capacity at Nederland, Texas, from the third quarter of 2025.

Its co-chief executive officer, Marshall McCrea, told an earnings call in November: "The international demand for ethane and LPG continues to grow through the roof ... especially in China."

($1 = 7.2751 Chinese yuan renminbi)