... Pipeline Industry Fears Negative Impacts from Steel Tariffs

Pipeline Industry Fears Negative Impacts from Steel Tariffs

Pipeline industry advocates have reacted negatively to U.S. President Donald Trump’s move to impose tariffs on imported steel and aluminum announced in March. The American Petroleum Institute (API), the Association of Oil Pipe Lines (AOPL) and the Interstate Natural Gas Association of America (INGAA) swiftly denounced the decision, which would affect iron and steel alloys used to make line pipe and other supplies for cross-country pipeline projects, as well as possibly impact jobs in the industry.

Citing national security, Trump released a Presidential Proclamation on March 8, announcing his intent to impose a 25 percent tariff on imported steel and a 10 percent tariff for imported aluminum, regardless of the country of origin. The API stated that implementing this trade policy could create confusion in supply chains, unnecessary costs and impacts to U.S. capital improvement projects and threaten industry jobs.

On March 22, the president announced a modification to the steel and aluminum tariffs, suspending them for certain countries before they take effect. The tariffs on steel and aluminum imports from Argentina, Australia, Brazil, Canada, Mexico, EU member countries and South Korea would be suspended until May 1, “pending discussions of satisfactory long-term alternative means to address the threatened impairment to U.S. national security.” By May 1, Trump said he will decide whether to continue to exempt these countries from the tariffs based on the outcome of those discussions. For those countries not exempted, the tariffs went into effect on March 23.

According to the March 22 statement, the president retains broad authority to further modify the tariffs, including by removing the suspensions or suspending additional countries.

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Furthermore, the process for directly affected parties to apply for an exclusion for specific steel or aluminum products that they need remains in place, as announced in Presidential Proclamations 9704 and 9705 and subsequent Federal Register notices by the U.S. Department of Commerce. U.S. Secretary of Commerce Wilbur Ross, in consultation with other administration officials, will evaluate exclusion requests for products, “taking into account national security considerations.”

In that evaluation, according to the White House statement, Ross will consider whether a product is produced in the United States of a “satisfactory quality or in a sufficient and reasonably available amount.”

A tariff on imported steel would increase costs and encourage U.S. companies and consumers to buy domestically produced steel instead. At the moment, American producers find it cheaper to import steel from Canada, China and Europe.

However, the iron and alloy steel used to make pipelines for oil and natural gas pipelines are not sufficiently available in the United States to meet today’s pipeline construction demand, according to a March 8 statement by the AOPL. At 3 percent of the total U.S. steel market, pipeline-grade steel is a specialty product forming a niche market that U.S. domestic steel producers largely exited, according to the association.

While higher tariffs on steel imports may cause U.S. companies to purchase more domestically produced steel and possibly create more jobs for steel mills, the result in the pipeline industry could be staggering cost increases.

The AOPL cited a May 2017 study, “ICF, Feasibility & Impacts of Domestic Content Requirements for U.S. Oil & Gas,” which found a 25 percent pipe cost increase would translate to $76 million cost increase for a typical pipeline or a cost increase of $300 million for a major cross-country pipeline project. In addition, U.S. pipe manufacturing mills (of which there are about a half dozen in the South) are small and can only handle one order at a time, according to the association, meaning wait times of up to two or more years for new pipe orders. The result could be delayed or canceled pipeline projects and jobs lost by U.S. pipeline construction workers.

API president and CEO Jack Gerard emphasized the need to ensure U.S. oil and natural gas investments in American infrastructure, facilities and jobs can continue.

“The actions taken today are inconsistent with the Administration’s goal of continuing the energy renaissance and building world class infrastructure,” Gerard said in a March 1 statement. “The U.S. oil and natural gas industry, in particular, relies on specialty steel for many of its projects that most U.S. steelmakers don’t supply.”

Gerard added that the administration must consider the “important investments that have driven job creation and economic growth” that have been driven by the oil and natural gas industry. He added that tariffs would hurt the industry because of the reliance on global steel imports for the majority of its operations, including steel for drilling, production facilities onshore and offshore, pipelines, LNG terminals, refineries and petrochemical plants.

As for the exclusion process announced by Trump and the U.S Commerce Department, Gerard stressed the importance of having clarity and flexibility regarding the steel and aluminum import tariffs for U.S. companies.

“We support an exclusion process from the Department of Commerce that is both transparent and flexible,” Gerard said on March 19. “That will allow the U.S. oil and natural gas industry to continue our significant investments in producing, transporting and refining U.S. energy resources, building world-class infrastructure and creating high-paying American jobs.”

Gerard added that the API expected that the Commerce Department would “acknowledge various market realities and take into consideration the complex supply chains of the U.S. oil and natural gas industry and the need for specialty steel not available domestically for many of its projects.”

North American Oil & Gas Pipelines will continue to follow this story and provide updates as they become available.

Pipeline Coalition Letter to President Trump

In a March 7 joint letter, a group of pipeline industry advocates expressed concern for the new steel and aluminum tariffs imposed by President Donald Trump. The coalition included AOPL president and CEO Andrew Black, INGAA president and CEO Don Santa, GPA Midstream Association president and CEO Mark Sutton, Texas Pipeline Association president Thure Cannon, Natural Gas Supply Association president and CEO Dena Wiggins, Center for LNG executive director Charlie Riedl, Energy Equipment and Infrastructure Alliance president and CEO Toby Mack and American Exploration & Production Council president V. Bruce Thomson.

The letter highlights the impact that oil and gas pipelines have on national security and cites the lack of U.S. availability as reason to exempt the industry from these tariffs. The full text of the letter follows:

Dear President Trump:

National security requires pipelines to deliver the energy America needs, and pipelines require specialty steel products not always available in sufficient quantities and specifications from domestic manufacturers. Pipeline projects create construction jobs, bring affordable energy to millions of American consumers, and support American energy production. These projects may not go forward if a steel tariff makes pipeline steel unavailable on a reasonable timeline and at a competitive price.

Just like in real estate, promising pipeline projects have not gone forward because the costs were too high, or the needed building materials not sufficiently available. We fear that broad tariffs on the specialty steels used by our industry would cause future projects to be delayed or canceled, thus threatening America’s energy dominance and risking higher prices for families at the gas pump, natural gas ratepayers, and energy-consuming employers nationwide.

Pipelines put Americans to work. Already, 75 percent of spending on a pipeline project ends up in the hands of American workers and businesses. A typical 300-mile pipeline project would generate approximately $1 billion in U.S. worker payroll and spending. Tariffs that include pipeline steel and lead to the cancellation of a pipeline project will deprive American workers and vendors of that $1 billion. Pipeline projects are also vital to national security. Due to insufficient pipeline capacity, certain areas of our country continue to rely on imported fuels to meet basic energy needs. As you weigh important concerns about broad steel market issues, we urge caution because American energy jobs depend on specialty pipeline steel products.

We understand and respect your concern for domestic steel manufacturers. We, too, hope to see domestic steel and pipe manufacturers always able to supply products on the terms needed for the American pipeline expansion you have so well promoted. Pipeline-grade steel is a high-cost specialty product in a cyclical niche market that some domestic manufacturers have moved away from.

In fact, for certain pipeline steel products, there is zero domestic availability today. Applying steel tariffs to transmission pipelines, oil country tubular goods, and other parts of oil and gas production and transportation cannot be the best way to help.

While we discourage you from imposing steel tariffs, we urge you at least to allow exemptions when steel products needed for energy production, processing, refining, transportation, and distribution are not sufficiently available in domestic markets. Doing no less will threaten American energy workers and consumers.

Bradley Kramer is managing editor of North American Oil & Gas Pipelines. Contact him at bkramer@benjaminmedia.com.

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