Tariffs, China’s Petrochemicals Sector,

and China-GCC Oil Relations

Oil Research Programme

Oxford Institute for Energy Studies

Oxford, May 2025

Assumptions

Trends shaping China’s oil scene

 China’s crude imports have been very volatile

China crude imports

§ China’s crude imports have been swinging between sharp
increases and steep declines.
§ The combined share of sanctioned crudes from Iran,
Venezuela and Russia increased from 15% in 2019 to
27% in 2024 (+12%). Iranian crude intake alone rose by
8%, increasing from 340 kb/d in 2019 to 1.2 mb/d in 2024.
Russian crude accounted for the remaining 4%, rising
from 730 kb/d in 2019 to 1.3 mb/d in 2024.
§ The share of crude imports from OPEC Middle East
excluding Iran was maintained at 35% in 2024, similar to
2019, but volumes saw a y/y decline by nearly 300 kb/d to
3.5 mb/d in 2024 from 3.8 mb/d in 2023. China sanctioned crude imports
§ The largest share decline since 2019 is observed in crude
imports from West Africa (WAF), with contribution falling
from 17% in 2019 to 9% in 2024 to total share, down by
600 kb/d to less than 1 mb/d.
§ The share of crude imports from the US stood only at 2%
in 2024 at 240 kb/d and are set to decline to very low
levels as the China-US trade war escalates.

Source: Kpler, OIES

 China’s refinery runs have also been volatile

§ Refining runs have been volatile and have risen only modestly from 2019 levels.
§ This is in part due to changing domestic demand patterns and the shift to petrochemicals
(including the increase in non-refining feedstock).

China refinery runs China refinery additions/closures

Source: Kpler, Argus, OIES Source: Argus, company reports, OIES

 Petchems lead China’s demand expansion

§ In the last few years, China's oil demand growth China oil demand growth
has been led by naphtha and LPG, driven
mainly by the petrochemical sector.

§ Between 2019 and 2024, demand for

LPG/Ethane and naphtha combined grew by
2.1 mb/d.

§ In contrast, gasoline and gasoil/diesel demand

has grown at a slower rate by 1.1 mb/d during
this period.

§ Factors such as electrification in passenger

vehicles impacted gasoline demand.

§ Diesel demand is slowing because of the

weakness in real estate sector, and due to
substitution for LNG and electricity in trucking.

§ Jet fuel has performed relatively better but

remains slightly below the 2019 levels. The
build out of high-speed rail in China could limit Source: IEA, Argus, NBS, OIES

growth rates going forward.

 Petchems will continue to dominate China’s oil demand growth

§ Looking forward, we project China’s oil demand Medium-term China demand outlook
to increase from 16.6 mb/d in 2024 to 17.8 mb/d
in 2030, up by 1.2 mb/d.

§ Most of this growth will be accounted for by

LPG/Ethane and naphtha demand (+1.1 mb/d)
driven by the growth of the petrochemical sector
despite weakening margins.

§ Forecast demand for gasoline and gasoil/diesel

is projected to contract by 290 kb/d, down by
145 kb/d each. Jet/Kero demand sees an
expansion to 2030, increasing by 330 kb/d.

Notes: Petchem group includes LPG/Ethane and naphtha. The main four
group includes gasoline, jet/kero, gasoil/diesel and fuel oil.
Source: OIES
 China at the forefront of new ethylene production capacity

§ In 2024, China’s ethylene capacity was Global ethylene capacity additions

estimated at 55 million tons/year (mt/y). by region

§ Between 2024 and 2028, ethylene production

capacity in China is expected to increase further
by around 25 mt/y contributing close to 50% of
global new capacity.

§ The capacity growth is expected to slow

through 2025, before rising again with mega
projects coming online in 2026-2028.

§ These include Yulong’s second 1.5 mt/y

cracker, CNOOC-Shell’s 1.6 mt/y cracker,
ExxonMobil’s 1.6 mt/y cracker, Sinopec
Zhenhai’s 1.5 mt/y cracker, Sabic Fujian’s 1.8
mt/y cracker, and Zhejiang Satellite’s two 1.25
mt/y crackers.

§ China’s increase in capacity is meeting

increasing but slower domestic demand
Source: Argus, OIES
enhancing self-sufficiency.
 China’s steady rise in propylene production

§ Similar to ethylene, China’s propylene production

is also projected to expand with almost 33 mt/y of Percentages of China’s propylene
new capacity expected to come between 2023 and capacity based on PDH
2028.

§ Historically, steam crackers, refineries with FCC

units, as well as coal-to-olefins (CTO) plants were
responsible for most of China's propylene
production, but recently the contribution of PDH
(Propane Dehydrogenation) plants has been rising
fast.

§ PDH plants convert propane into propylene—a key

raw material for plastics and other chemicals.

§ PDH capacity in China reached around 22 mt/y in

2024 and is expected to increase with the startup
of new PDH plants. PDH account for 32% of
China’s propylene capacity.

§ A challenge for new starts is the increasing

reliance on US LPG. With LPG being caught in the
trade war, this could increase the feedstock cost Source: ICIS Supply & Demand Database
and with margins already under pressure, this
expansion could face delays.
 Rapid expansion weighing on margins and utilization
§ The large expansion in petrochemical capacity has weighed heavily on operating rates, a trend
which is likely to continue towards 2030.
§ Margins are likely to remain under pressure due to overcapacity, limited exports to the US and a
weaker global economic outlook.
§ Some consolidation is likely in China, and emissions control targets could slow project approvals.

Global operating rates across selected Feedstock cash margin comparison

high-volume petrochemicals

Source: McKinsey & Company Source: Argus

Assumptions

Feedstock composition of China’s

petrochemicals sector
 Naphtha remains the key feedstock for petrochemicals

§ Unlike its counterparts in the GCC and the US, China’s ethylene is mainly produced through
naphtha steam cracking (70%). LPG and ethane accounted for around 8% in 2023.

§ CTO remains a significant part of the petrochemical sector driven in part by energy security
concerns. Beijing's energy consumption cap excludes coal used as feedstock, allowing coal to
chemicals to grow and maximising the availability of domestic coal.
China steam cracker feedslate

Source: Argus (Argus China Steam Cracker Feedstock Model)

 Increasing reliance on naphtha

§ The reliance on naphtha is bound to increase. China naphtha imports

§ New greenfield refineries have been building deep

conversion plants to maximize the naphtha yields
to be used in integrated petrochemical plants. The
Hengli refinery has achieved petrochemical
feedstock exceeding 40% (compared to 8%
naphtha yields in typical refineries).

§ Naphtha imports are set to rise even as more

petrochemical plants take feedstock from their
integrated refineries. In 2024, China imported 300
kb/d of naphtha, over a third from the GCC.

§ The expansion of PDH plants will lead to higher

LPG imports but given the US-China trade war,
naphtha could become the preferred route for
energy security reasons.

Source: Kpler, OIES

 China’s imports of feedstock are bound to increase

§ China’s oil production has been increasing but imports also continue to rise.

§ Natural gas liquids (NGLs) output is insufficient to meet the ethane and LPG feedstock
requirements for petrochemicals.

China primary oil supply

Source: IEA, OIES

Assumptions

Ethane, LPG and naphtha trade flows

 The rise of the US as a major feedstock supplier to China

§ China’s oil and supply demand patterns alongside the rapid expansion in petrochemicals have
transformed oil and products trade flows, as well as investment flows, with the US emerging as a
key exporter of feedstock into China.

US exports to China

Notes: Natural Gas Liquids include ethane, propane, normal butane, isobutane and natural gasoline.
Source: US EIA, OIES
 China’s reliance on US LPG and ethane supply (1/2)

US supply growth by liquid

§ On the trade front, the US has emerged as a key supplier of
ethane and LPG to China, in part also following the Phase 1
trade deal in 2020.

§ The increase in US gas and NGLs has made the US the

world’s largest producer and exporter of ethane and propane.

§ In 2024, ethane production reached a record level of 2.8

mb/d, up from around 1 mb/d in 2014. US ethane supply
satisfies both domestic demand (mainly used in the
petrochemical sector as a feedstock to produce ethylene) and
exports.
US exports of ethane
§ In 2024, ethane exports reached a record level of 492 kb/d
with ethane exports increasing almost every year since 2014
(the only exception was the 2020 COVID shock). This is
driven by strong petrochemical demand and rising tanker
capacity.

§ While US crude exports to China remain relatively limited, at

around 2% of total China’s crude intake in 2024, US exports
of ethane has seen a sharp increase in recent years.

§ In 2024, China accounted for 46% of total US ethane exports.

Source: IEA, US EIA, OIES

 China’s reliance on US LPG and ethane supply (2/2)

§ In addition, US production of propane has US exports of propane

increased sharply from 190.8 mb in 2000s to
787.1 mb in 2024 benefiting from the increase
in NGLs and natural gas processing as well as
investment in infrastructure.

§ In 2024, US propane exports surged to

unprecedented levels, averaging 1.8 mb/d, from
0.4 mb/d in 2014.

§ As in the case of ethane, China has been

capturing a growing share of US propane
exports. Sales to China accounted for 17% of
total US propane exports in 2024, second only
to Japan (28%).

§ US accounted for around 56% of total LPG

supplies to China, followed by the UAE (10%),
Iran (10%), Qatar (7%), Saudi Arabia (4%),
Oman and Kuwait (3% each).*
*SeeReuters. 2025. Russia lacks infrastructure to replace Source: US EIA, OIES
US LPG for China, 10 April.
 US large producer of PE / China large importer of PE
§ The growth in the US has not only been limited to petrochemical feedstock. US exports of ethylene
derivatives have also risen fast.
§ Low ethane prices provided US producers with a cost advantage compared to other suppliers.
§ According to EIA, total US ethylene-derivative exports grew 20% to 16.9 mt from 2022 to 2023, led by
a 69% increase in exports to Asia.
§ Retaliatory tariffs could impact US ethylene-derivatives such as Low-density polyethylene (LDPE) and
High-density polyethylene (HDPE) exports to China.
US annual ethylene-derivative export destinations

Source: US Census Bureau, US EIA

Assumptions

The impact of the US-China trade war

 US-China trade war

§ Average US tariffs on Chinese exports as of April 12 stand at 124.1%, more than 40 times than
before the US-China tariff war began in 2018.
§ In response, China has retaliated lifting its average tariffs on US exports to 147.6%, while
increasing the scope of covered US exports to 100%.

US-China average tariff rates Percent of US-China trade subject to tariffs

Notes: Trade-weighted average tariffs computed from product-level tariff and Source: Peterson Institute for International Economics, OIES
trade data, weighted by exporting country’s exports to the world in 2017.
Source: Peterson Institute for International Economics, OIES
 Impact on China’s crude imports from the US is minimal

§ Crude imports from US were at very low levels and China can easily replace US crude imports.
The rise of US flows to China in 2020 was prompted mainly by the Phase 1 deal following the
first trade war.
§ Refiners, especially the independent refiners, rely on sanctioned crudes.

China crude imports by select origin

Source: Kpler, OIES

 Ethane: Impact of higher tariffs

§ For China, that imports nearly half of total US US exports of ethane by destination
ethane exports, there are few alternatives to US (% of total)
ethane supplies, as the US is the only country
that exports waterborne ethane.

§ Utilization rates in ethane crackers in China are

set to fall if tariffs are applied.

§ But according to recent media reports, China

has recently removed the 125% tariff on ethane
imports from the United States to ease pressure
on Chinese petrochemical firms.

*SeeReuters. 2025. Exclusive: China waives tariffs on US ethane

imports, sources say, 29 April.

Source: US EIA, OIES

 Propane: Impact of higher tariffs

§ US suppliers could price tariffs into propane US exports of propane by destination

exports and/or find alternative outlets. (% of total)

§ Crackers outside China (particularly in Asia)

could maximize their use of LPG plus increase
utilization.

§ Rerouting of LPG trade: US LPG set to arrive in

China in May and June diverted to India and
Southeast Asia freeing Middle Eastern
shipments to China.

§ China may have to increase reliance on LPG

imports from Iran.

§ Russia can’t replace US LPG due to lack of

infrastructure.

§ Despite this rerouting, China may still face LPG

shortfall and will not be able to replace loss of
US LPG supplies forcing reduction in utilization
rates in PDH plants which were already at low Source: US EIA, OIES

levels as many PDH plants were operating at a

loss.
 Naphtha: Impact of higher tariffs

§ Naphtha demand in China could increase due Medium-term China oil demand growth
to lower availability of ethane and LPG by product
feedstock.

§ As petchem producers suffer from the higher

costs and limited availability of LPG and
ethane, integrated refiners will be able to
capture market share.

§ But growth could be limited by demand as

tariffs have weakened global trade, and most
traded products have a large naphtha
component.

Source: OIES
Assumptions

GCC-China oil relations

 These transformations in China coincide with fundamental
changes in the GCC oil scene

§ Gulf oil exporters have been able to maintain their share of crude exports to China to around 35%
between 2020 and 2024, from 32% in 2019, albeit volumes have been volatile and in decline since
2022.

GCC crude exports to China by origin

Source: Kpler, OIES

 GCC’s refining capacity expanding

Middle East refining capacity

§ One of the major trends shaping the GCC oil scene is the
upgrade and increase in its refining capacity.

§ GCC refining capacity has increased from 4.9 mb/d in 2014 to

above 7.2 mb/d in 2024, up by 2.3 mb/d, with the startup of new
refineries in Saudi Arabia, Kuwait and the UAE.

§ This has been reflected in the rise in refinery runs and petroleum
products’ exports. Refinery runs have increased by nearly 1
mb/d between 2019 and 2024 while products’ exports increased
by 1.2 mb/d during the same period.

§ Alongside the production cuts under the OPEC+ agreement, this

has caused a decline in crude exports particularly for the heavy GCC crude runs
and sour medium grades.

§ This is perhaps most evident in the case of Kuwait. With the start
of the 615,000 b/d Al-Zour refinery, Kuwait’s products exports
have been on the rise causing its crude exports (mainly medium
sour) to fall from 1.8 mb/d in 2022 to 1.3 mb/d in 2024. Projects
such as ADNOC’s Crude Flexibility Project (CFP) at the Ruwais
West refinery has increased the refining of medium sour crudes
such as Upper Zakum and Iraqi Basra Heavy, freeing the export
of larger volumes of Murban crude.

Source: ENI World Energy Review, Kpler, OIES

 Refining output turns into clean products

§ In terms of refinery output, most of the GCC refinery output by product

increase in GCC output and exports have
been in middle distillates, particularly from
Saudi Arabia and for diesel.

§ But there have also been considerable

increases in naphtha and to a lesser extent
LPG output.

§ Naphtha output increased from 745 kb/d in

2019 to 925 kb/d in 2024, while LPG output
grew from 140 kb/d to 180 kb/d, representing
a 30% increase, nonetheless.

§ In terms of exports, naphtha exports from the

GCC rose from 830 kb/d in 2019 to 1.2 mb/d
in 2024, with the UAE and Kuwait driving most
of this export growth destined primarily in Asia.

Source: Kpler, OIES

 LPG supply set to expand

§ In addition to naphtha, few GCC countries are projected to increase their LPG output.*

§ Qatar is already one of the GCC’s largest LPG producers with its output reaching 10.7 mt/y
in 2024 (around 354,000 b/d). This is expected to increase with the expansion of the gas
North Field and Qatar LNG capacity, with Argus Consulting estimating Qatar’s LPG
production to rise to 17.6 mt/y by 2030.

§ UAE’s production is projected to increase from 12.5 mt/y in 2024 to 15 mt/y in 2030. This will
be driven by projects such as the Ruwais LNG which will double UAE’s LNG capacity,
alongside other investments in integrated gas projects and natural gas processing plants.

§ Saudi Arabia has also ambitious plans to increase its sales gas output from 9.1 billion cfd in
2021 to 14.7 billion cfd in 2030. A key driver of this growth is the development of the Jafurah
gas play which is estimated to contain total resources of 229 TCF of raw gas and 75 billion
barrels of condensate. Once fully developed, Jafurah is projected to reach full capacity of 2
billion cfd of natural gas, 1,418 million cfd of ethane and 630,000 b/d of NGLs and
condensate in 2030.

§ Oman’s LPG output has risen sharply, more than doubling from its 2015 level to 990,000 t/y
in 2024. The start of the Duqm refinery has also boosted LPG output since 2022.

*Sources: Argus, MEES, and other industry reports.

GCC chemical industry set to expand

GCC chemical industry projected expansions and megaprojects

Source: Gulf Petrochemicals &

Chemicals Association (GPCA)
 Despite the increase in mixed feedstock crackers, ethane will
continue to dominate petchems feedstock in GCC

GCC naphtha exports by country

§ Despite these large projects, historically, the has
GCC relied on ethane as the main feedstock for its
petrochemical projects. This is changing slightly:
some of the new projects involve the use of mixed
feedstock crackers and will rely on LPG and naphtha.

§ Most of the naphtha and LPG will still be exported.

§ The GCC is already a key LPG exporter.

§ Qatar has been exporting most of its LPG with

exports hovering around 10 mt/y, mostly to India.
Middle East LPG exports
§ The UAE exported 11 mt/y in 2024, mostly to India.
With the expansion of LPG production and limited
diversion into the petrochemical sectors, LPG exports
from these two countries are projected to increase.

§ Unlike its neighbours, large volumes of Oman's LPG

are used in the domestic petrochemical industry.
Oman must at times import LPG to satisfy its
domestic demand.

Source: Argus, Kpler, Vortexa, OIES

 Saudi-China and investments in petrochemicals (1/2)

§ The change in demand patterns in China and the rapid expansion in capacity impacting
investment flows particularly between China and Saudi Arabia.

§ A key component of Saudi Arabia’s strategy is to convert a large share of liquid output into
chemicals products as demand for chemicals is projected to rise. Investment in China’s
petrochemical sector fits well into this strategy.

§ China’s demand for primary petrochemicals and petrochemical products expected to

dominate global demand growth to 2030, even if growth rates slow.

§ China can build high conversion integrated refining and petrochemical plants at a
competitive cost. By investing in China’s petrochemical sector, Saudi Arabia can divert
higher volumes of liquids to petrochemicals at a lower cost.

Sources: MEES, and other industry reports.

 Saudi-China (Asia) and investments in petrochemicals (2/2)
Project Name Partners Location Refining Capacity Chemicals Capacity Status
(b/d)
Hujain Aramco Aramco (30%), Norinco Corp Panjin, Liaoning 300,000 1.65 mt/y of ehylene, 2 mt/y of Under construction, 2026
Petrochemical Company (51%), Panjin Xincheng province paraxylene capacity planned start-up.
(HAPCO) (19%)

Zhejiang Petrochemicals Aramco, Rongsheng Zhejiang 800,000 4.2 mt/y of ethelyne Aramco acquired 10% stake
(ZPC) Phase 2 in parent company
Rongsheng; started 2022.
Shenghong Petrochemicals Shenghong Energy Group/a Jiangsu 320,000 MOU to acquire 10%, started
subsidiary of Shenghong 2023.
Holding Group Co., Ltd.
Yulong Petrochemicals Shandong 400,000 MOU to acquire 10%, start
date 2024-2025.
Hengli Petrochemicals Liaoning 400,000 MOU to acquire 10%, start
date 2024-2025.

Gulei Petrochemical Sabic (51%), Fujian Energy Fujian province 320,000 Mixed feed cracker with 1.8 mt/y Under Construction, start
Industrial Park/SABIC Fujian and Petrochemical (49%) of ethylene capacity date 2026, completion 2030.
Petrochemical Complex

Gulei II integrated FPCL (50%), Saudi Aramco Gulei, Fujian province 320,000 1.5 mt/y petrochemical cracker HOA signed in 2022;
Complex/Gulei II Integrated (25%) and Sinopec (25%) Construction commenced in
Refining and Petrochemical November 2024, with the
Complex facility anticipated to be fully
operational ending-2030.
Fujian Refining and Saudi Aramco (25%), Exxon Quanzhou, Fujian Province 280,000 1.1 mt/y of ethylene, 0.9 mt/y On stream in 2009.
Petrochemical (FRPL) (25%), Sinopec (50%) polyethylene unit, 0.67 mt/y
polypropylene unit and
an aromatics complex
S-Oil Shaheen S-Oil (63.4%)-S-Oil is Ulsan, Korea 1.8 mt/y of ethylene/3.2 mt/y of Under Development,
majority-owned by Aramco petrochemical feedstocks. The completed in 2026.
Overseas Company, a facility will feature the world's
subsidiary of Saudi Aramco largest naphtha-fed steam
cracker, capable of producing 1.8 Source: MEES and other
mt/y of ethylene industry reports.
 Bassam Fattouh
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Director, OIES
potential escalation
Andreas Economou
Head of Oil Research

Michal Meidan
Head of China Energy Research

May 2025