By Trixie Yap and Chen Aizhu
SINGAPORE (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 in 2018.
Satellite and Energy Transfer also agreed a supply deal with annual shipments of over 3 million tons of U.S. ethane that lasts through 2030.
(Reporting by Trixie Yap and Chen Aizhu, additional reporting by Siyi Liu and Sam Li; Editing by Jamie Freed)
