President Donald Trump’s threatened tariff of 25% on imported steel is roiling major segments of the energy industry.
The expanding natural gas pipeline industry is particularly concerned about the administration’s direction on steel imports, designed to aid the U.S. steel industry. A coalition of oil and gas trade groups today sent a letter to the White House cautioning the administration about the damage the tariffs could cause to the use of natural gas and the expanding business of exporting liquefied U.S. gas.
The letter said that “pipelines require specialty steel products not always available in sufficient quantities and specifications from domestic manufacturers.” It added, “Pipeline-grade steel is a high-cost specialty product in a cyclical niche market that some domestic manufacturers have move away from,” adding that “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.”
The letter, engineered by the Washington-based Interstate Natural Gas Association of America (INGAA), said, “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 worker and consumers.”
Earlier, INGAA told reporters via email, “The type of pipe and the steel used to make large diameter, thick-walled pipe used for interstate natural gas pipeline projects are niche products that are not available off the shelf or even from a wide variety of manufacturers.”
Signing the letter were INGAA, the Association of Oil Pipelines, the CPA Midstream Association, the Texas Pipeline Association, the Natural Gas Supply Association, the Center for LNG, the Energy Equipment & Infrastructure Alliance, and the American Exploration & Production Council.
Writing in Forbes, industry analyst Jude Clemente this week said, “This is a big problem for all Americans because it’s a big problem for our booming oil and gas industry, which is now producing at record levels — 10.3 million b/d of crude oil and 78 Bcf/d of gas. In short, the tariff is opposite the administration’s own stated goal of ‘energy dominance’ and upgrading our critical infrastructure to the tune of $1.5 trillion.”
Clemente, a Pittsburgh native, said, “Our steel industry peaked in the 1940s, and we live in an increasingly global world, where trade can only be increasingly important. At 92 million tonnes, the U.S. produced just 6% of the world’s steel in 2016, compared to nearly half that China produced.”
At the annual CERAWeek energy confab in Houston, sponsored by IHS Markit, Alaska GOP Senator Daniel Sullivan said, “Right now the approach seems to be splitting our allies apart.” Gregory Armstrong, CEO of Plains All American Pipeline, said, “We don’t think it would be appropriate to put a tariff on something you can’t buy here in the United States. We’ll survive no matter what. It’s a thornier issue than printed in the headlines.”
Michael Smith, CEO of the $4 billion Freeport LNG project now under development in Texas, told the CERAWeek meeting that the Trump 25% steel tariff could increase the cost of his export terminal by 3.5% to 5% or around $200 million.
The steel tariff could also result in collateral damage to the U.S. coal industry, which Trump has trumpeted as an industry he wants to protect. CNN reported that the tariffs “may invite retaliation against American coal….” Metallurgical coal (coking coal), needed in primary steel production and a major export commodity, has been the only bright spot in the industry recently.
The CNN reported that Brazil’s Industry Ministry has warned it may move “to preserve its national interest” against the Trump tariffs. According to the Energy Information Administration, Brazil imported some 5 million tons of met coal in the first three quarters of 2017. Andy Roberts, a coal analyst at Wood Mackenzie, told CNN, “If someone is trying to retaliate, coal would be an easy target given the president’s support toward the industry.”
— Kennedy Maize