Since being implemented earlier this year, US President Donald Trump’s tariff on imported steel has placed the oil and gas industry—and its continued growth—in a kind of limbo. One of the most affected participants along the energy industry’s value chain has been pipeline companies, largely because of its need for line pipe for continued expansion of the country’s oil and gas pipeline network.
In written testimony last month before a hearing of the US House Committee on Ways and Means’ Subcommittee on Trade, Plains All American GP LLC Executive Vice-Pres., Chief Operating Officer, and incoming Chief Executive Officer Willie C. Chiang expressed his concerns with the Section 232 tariff exclusion process on steel.
The US Department of Commerce recently denied PAA’s exclusion request for 26-in. OD, high-frequency welded line pipe that the company needs to build the Cactus II pipeline, a planned 550-mile crude oil system that would enable production growth from the Permian basin in West Texas and southeastern New Mexico. About 80% of the $1.1-billion project cost, Chiang noted, is comprised of US material and labor and will support more than 2,600 construction jobs.
With an initial in-service date that is projected for fall of 2019, Cactus II will ultimately provide nearly 700,000 b/d of oil transportation capacity.
Jobs, security, trade
The Permian is one of the fastest growing crude oil basins in the world and the largest driver of current and projected future US energy production growth, Chiang noted. “Permian basin energy production growth benefits job creation, national energy security, and the balance of trade. However, crude oil production growth in the Permian basin is being threatened by the very fact that it is rapidly outpacing available pipeline takeaway infrastructure.”
Chiang noted, “Timely construction of proposed pipeline infrastructure in this region is critical to ensure adequate pipeline capacity that will sustain Permian production growth. If sufficient pipeline infrastructure, including our Cactus II Pipeline system, is built within the next 18 months as planned, it is anticipated the Permian basin will surpass China, Canada, and Iraq to become the fourth-largest liquids petroleum producing region in the world.”
PAA proceeded with the exclusion process for the Cactus II line pipe that the company ordered in December 2017 when the Section 232 tariffs were introduced in March, Chiang testified.
“The specific pipe specification required by the project is not manufactured in the US, requiring us to order it from overseas,” Chiang wrote. “We were disappointed that the Commerce Department rejected our request for tariff exclusions and, as I will testify, our experience with the exclusion process has revealed significant flaws in the implementation of Section 232 for steel tariffs.”
Chiang testified that it has now become “essential” that Congress help correct flaws in the way Section 232 tariffs and the exclusion request process have been implemented. “We believe by making certain improvements to the Section 232 process, Congress and the administration can achieve President Trump’s objectives for revitalizing the steel industry while promoting US energy dominance,” he wrote.
Recommendations
Chiang posed the following five recommendations before the subcommittee to improve the Section 232 process:
• Exempt international steel orders placed prior to the imposition of tariffs and quotas.
• Exempt critical project components from tariffs and quotas.
• Recognize technical decisions regarding product specifications must be made by individual companies, not the US government.
• Ensure companies receive due process in the exclusion request procedures.
• Consolidate exclusion requests by project or purchase order instead of requiring individual filings for nearly identical products.
Recognizing that line pipe represents about 5% of the total volume of steel imports, Chiang asked that Congress and the administration “consider exempting line pipe from steel tariffs and quotas until the US steel industry is able to build the capability and capacity to timely manufacture the line pipe required to meet America’s energy production growth.”
In closing, Chiang stated, “We need to find a way to promote both energy production and our steel industry—not pit one against the other.”
