232 tariffs dismay US Oil & Gas sector

Posted on 04 June 2018

Source: Kallanish Steel

President Trump’s 31 May announcement his administration would implement a 25% tariff on imported steel from allies Canada, Mexico and the European Union, caused the U.S. oil and gas industry to collectively gasp.

The levies would be placed on the specialised pipe used to construct oil and natural gas pipelines. According to a 2017 study conducted by ICF International for industry groups, a 25% increase in the cost of pipe translates into a $76 million cost increase for a typical (280-mile) line project.

For larger cross-country pipeline projects, costs would likely increase by $300 million. Even for billion-dollar lines, that is a lot of added expense.

Because of the specialty steel used in the construction of oil and natural gas lines, builders have a limited number of suppliers that sell the materials they need. Pipeline-grade steel is considered a niche market, comprising less than 3% of the overall steel market – little of which is manufactured domestically.

“[… The] economic analysis study conducted on behalf of the U.S. pipeline industry last year found U.S. domestic steel and pipe production capacity is insufficient to meet pipeline demand, especially for larger diameter or thicker walled pipelines,” John Stoop, vice president, Government & Public Relations, for the Association of Oil Pipe Lines (AOPL), said in a statement emailed to Kallanish Steel’s sister publication Kallanish Energy.

“At 3% 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. … U.S. pipe manufacturing mills (a half-dozen in the South) are small and can only handle one order at a time, meaning wait times of one to two or more years for new pipe orders,” Stoop said.

According to the March report by the US International Trade Administration, U.S. pipe and tube imports in 2017 included 2 million tonnes from South Korea, 950,000t from Canada, and 900,000t from Mexico. Significant quantities also arrived of 500,000t from India, and 400,000t from Germany.

 “This tariff could tip the scales on projects that are on the economic margin, having the effect of either delaying or cancelling certain projects. Second, even with the steel tariff exemptions process being developed by the U.S. Commerce Department, the exemptions process is a new regulatory hurdle,” he added.

AOPL’s Stoop said the trade group is concerned trade action on steel will delay or cancel U.S. pipeline projects and cost jobs for American pipeline construction workers.

 “Slowing or cancel ling new U.S. pipeline construction projects is especially concerning as growing U.S. energy production faces pipeline capacity restrictions,” Stoop said. “The lingering threat of tariffs or trade wars limiting access to pipe for new pipelines hinders our ability to design, plan and approve multi-year, multi-billion-dollar pipeline infrastructure projects.” 

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