Immediately after taking office, President Trump rewarded the pipeline industry for its support of his presidential run by clearing the way for the construction of the Keystone XL Pipeline and the Dakota Access Pipeline. These early presidential actions were followed by countless agency actions in favor of fossil fuel extraction.
But every relationship, even one as seemingly perfect as Trump’s alliance with the fossil fuel industry, has its rocky moments. The era of good feelings hit a bump this week when Trump on Thursday imposed a 25 percent tariff on imported steel.
The industry quickly expressed displeasure when the proposal was first announced. Pipeline companies and their trade groups, however, did not offer any immediate reactions to the import tariff when it was officially announced on Thursday.
Prior to Thursday’s announcement, oil and gas industry associations asked Trump, if he goes through with the tariffs, to allow exemptions when steel products are needed for energy transportation, production, and refining.
“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,” the groups wrote in a letter delivered to Trump on Wednesday.
Another trade group, the Independent Petroleum Association of America (IPAA), sent a letter to the White House on Thursday arguing that pipeline and well steel should not fall under the tariff provisions. “American oil and natural gas extraction hinges on the availability of steel — particularly the steel needed for well construction, for surface management and for pipelines to gather and move its production,” IPAA President and CEO Barry Russell wrote in the letter.
As part of the tariff changes, the administration reportedly will allow the oil and gas industry to apply for certain products to be exempt from the tariff if they are not met by domestic production. The Department of Commerce will manage the applications for individual exemptions on a case-by-case basis.
This isn’t the first time Trump has taken action or made comments that raised eyebrows in the oil and gas industry. On the campaign trail, Trump said he supported local control over fracking and that communities should be allowed to ban the drilling practice. The statement put him at odds with industry groups, who believe the practice is safe and should be permitted nationwide.
Less than a month after he made the statement about fracking, Harold Hamm, billionaire owner of Continental Resources and Trump’s top energy adviser, said he believed the then-presidential candidate no longer supported local and state fracking bans.
Oil and gas industry groups had hoped Trump also would backtrack on his plan to impose tariffs on steel imports. In their letter to the president ahead of Thursday’s announcement, the industry groups — the Interstate Natural Gas Association of America, Association of Oil Pipe Lines, Texas Pipeline Association, Natural Gas Supply Association, and the Center for LNG — explained that pipeline-grade steel is a high-cost product in a niche market in which few domestic manufacturers still operate.
“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,” the groups said.
Most of the domestic pipeline steel is made at a factory in Arkansas. Other pipeline steel is imported from Canada, India, and Italy.
The cost of a pipeline can be $2 million to $6 million a mile, depending on the terrain, according to Colton Bean, director of equity research at Tudor, Pickering, Holt and Co. According to a CNBC report, Bean estimates pipeline construction costs could rise 3 to 5 percent if the tariffs are imposed. Bean said the pipelines under construction now already have acquired steel, while pipelines scheduled for construction after 2020 could see cost hikes if the tariff is imposed.
In evaluating the effects of steel tariffs on pipeline construction, S&P Global Platts Analytics estimated that approximately 56 percent of oil and gas pipeline demand was met by foreign imports in 2017.
On Wednesday, more than 100 Republican members of the House of Representatives sent a letter to the president expressing concern about his proposed tariffs on steel and aluminum imports. If Trump does impose the tariffs — as he now has — the Republicans insisted existing contracts to purchase steel or aluminum “should be grandfathered to allow duty-free imports and avoid disrupting the operation and finances of projects that are already budgeted and underway.”
Trump held a ceremony at the White House on Thursday where he announced tariffs on both steel and aluminum imports would go into effect in 15 days. The president’s proclamation included a clause that exempted the tariffs from immediately taking effect on imports from Canada and Mexico.
Other nations also will be allowed to seek tariff exemptions in exchange for fairer trade with the United States, according to the administration. For countries that do not win exemptions, steel imports will be taxed at 25 percent and aluminum imports at 10 percent. If Mexico and Canada win permanent exemptions, tariffs on imports from other nations may have to be increased beyond 25 percent.
“The American steel industry has been decimated during the past decades by steel imported into our country at lower prices than domestic manufacturers can sustain,” the White House said in a fact sheet released Thursday.
Earlier this week, the steel tariffs were also brought up at the CERAWeek energy conference currently taking place in Houston. The head of Plains All American Pipeline warned that steel tariffs such as those proposed by Trump could hurt pipeline construction in the United States. Company CEO Greg Armstrong told the conference that certain types and sizes of steel pipe are only available outside the United States. “We got about $1.5 billion of projects underway that use quite a bit of steel,” Armstrong said.
Plains All American has a history of pipeline accidents. Since 2004, the company’s pipelines have spilled more than a dozen times, releasing nearly 2 million gallons of hazardous liquid. In 2015, for example, a pipeline owned by Plains All American ruptured, causing more than 100,000 gallons of heavy crude oil to spill into the Pacific Ocean along the coast of Santa Barbara County, California.
Sen. Daniel Sullivan (R-AK) meanwhile told the CERAWeek audience that he disagrees with Trump’s proposed steel tariffs, explaining they would raise costs for the energy sector. In a trade war, Sullivan said he worries other countries would harm Alaska by placing tariffs on seafood and energy supplies.
Also at the conference, Energy Secretary Rick Perry said he wasn’t sure if a 25-percent tariff on steel imports was Trump’s final decision. “I’m not sure he has made up his mind” on the tariffs, Perry said on the sidelines of the conference, according to a Reuters report. At the conference Perry also highlighted the push to export U.S. fossil fuels to other countries.
Tariffs traditionally make companies in the export business nervous, according to Michael Smith, CEO of Freeport LNG, a proposed liquefied natural gas terminal. If steel prices go up 25 percent because of the tariff, the cost of proposed LNG export terminals in the United States will increase by 3.5 percent to 5 percent, Smith told S&P Global News, an industry news services. LNG terminals use huge amounts of steel.
The idea of promoting U.S. steel emerged during Trump’s presidential campaign. And soon after taking office, Trump signed a directive clearing several hurdles out of the way of the proposed Keystone XL pipeline. At the time, Trump touted a new requirement — that the pipeline be made with U.S.-manufactured steel. A month later, the White House flip-flopped, recognizing that the requirement to use domestic steel would conflict with the Trump administration’s pro-business stance. As part of the reversal, Trump decided to exempt the Keystone XL pipeline from the made-in-America steel requirement.
About half the steel used to build the Keystone XL pipeline will come from a plant in Arkansas, according to TransCanada Corp., the pipeline’s developer. The rest will be imported. TransCanada plans to break ground on the new oil pipeline in 2019.
In their letter sent on Wednesday to Trump, the energy trade groups warned that 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,” the groups said.