Consumers, U.S. Energy Security Impacted by Tariffs

Mark Green
Posted July 19, 2018

The Trump administration’s rejection of Plains All American’s request for an exclusion to the administration’s tariffs on imported steel – which the company planned for a pipeline out of the Permian Basin, the nation’s most dynamic oilfield – illustrates the head-on collision between trade policies and energy goals.

Caught in the middle: American consumers and U.S. energy security.

We warned there could be significant problems for domestic energy from those tariffs and quotas on imported steel. We also flagged looming problems in the Commerce Department’s confusing, opaque process to decide when those restrictions would be waived in individual cases.

Plains hoped to earn a tariff exclusion. The company made its application and was denied, directly impacting its planned 550-mile, $1.1 billion Cactus II pipeline from the Permian, where production already is challenging existing infrastructure’s capacity to transport oil and natural gas out of the oilfield. The Journal of Petroleum Technology:

The Permian Basin currently has more crude than it can handle, and production there continues to grow … Pipeline takeaway capacity isn’t sufficient and won’t be until the second half of 2019. There aren’t nearly enough trucks or truck drivers to make up the difference …

In the graph above from the journal article, you can see the Cactus II pipeline (dark purple) was projected to be a significant help easing the Permian infrastructure bottleneck. Now there’s significant uncertainty with the project.

Plains' exclusion application argued that only three steel mills in the world could produce the steel it needs, made with a high-frequency welded technique, and none is in the U.S. The request was opposed by a handful of entities, and in the end the opposition won out with Commerce officials. Plains spokeswoman Karen Rugaard to Reuters:

“The steel tariff exclusion request review process is flawed and does not allow for an applicant to effectively engage. We are reviewing our options to challenge this decision. … [Reviews appear] to rely on comments that are not required to be substantiated, and on a review of undisclosed data by staff without meaningful interaction with the applicants.”

Reportedly, Commerce has received more than 26,000 requests for exclusions but has made final decisions on only a tiny fraction of those. Other natural gas and oil companies are awaiting decisions from the government, which means that to some extent, other projects are waiting, too.

This classic example of government red tape is certainly no path toward the U.S. “energy dominance” the administration supports. Marty Durbin, API executive vice president:

“This ruling ignores the legitimate and critical needs of the natural gas and oil industry for global sourcing of specialty steel products essential to delivering energy to the American families. … Section 232 tariffs threaten the affordability and abundance of energy produced in the United States, energy that powers our economy and creates well-paying jobs for American workers. The administration should reconsider their trade policy decisions.”

Aaron Padilla, API senior advisor, told S&P Global that energy growth in the Permian depends on infrastructure keeping pace and that steel tariffs could jeopardize the United States’ standing as the world’s leading natural gas and oil producer:

“While we wouldn't speculate on how long the infrastructure bottleneck will last, these trade policies could impact investments and limit availability of materials needed to increase pipeline capacity in the area.”

Joshua Zive, trade attorney, also spoke with S&P Global:

The Plains decision “reaffirms what we've known all along, which is that it was going to be very difficult to secure exclusions. [The ruling] “sends a clear signal to users of these metals that the relief we need is foundational relief from these tariffs, not just dribs and drabs.”

Tariffs and quotas – as well as an exclusions process that likewise causes delays and uncertainties – are misguided and hindering to America’s game-changing energy renaissance. As they effectively hamper the growth of domestic energy and vital infrastructure networks, they work against other, laudable initiatives the administration has and is taking to support U.S. energy. From a recent op-ed by API President and CEO Jack Gerard, the American Chemistry Council’s Cal Dooley and the Association of American Railroads’ Edward Hamberger:

Right now, the White House has a critical opportunity to avoid years of damaging impacts to American businesses and consumers by undoing these serious tariff missteps. It’s already clear that this well-intentioned policy will actually make the United States less competitive, undermine this administration’s vision of energy dominance and the manufacturing renaissance, and almost certainly destroy many more jobs than it protects.

Natural gas and oil are leaders in driving economic growth, creating jobs and increasing U.S. security. The administration’s tariffs policy is wrong for American energy, putting these benefits – growth, jobs and security – at risk.