Washington policy experts believe the steel tariffs proposed by the Trump administration could cause some U.S. pipeline companies to cancel projects and potentially hurt gas exports to Mexico.
"I think that while the cost increases would be prohibitive for companies that haven't already taken delivery of their pipes, the jury's still out on whether this happens," Capital Alpha Partners LLC Managing Director James Lucier said in a March 6 interview.
The tariffs are controversial, not only in the gas pipeline industry and other manufacturing sectors that use steel and aluminum, but among Republican lawmakers and Trump administration officials, some of whom worry about a trade war. Industry supporters have asked President Donald Trump to reconsider his plans for a 25% tariff on steel and a 10% tariff on aluminum imports or make an exception for interstate pipeline and LNG export projects.
Policy experts said an increase in costs to steel, a primary material in infrastructure projects, could hamper gas transportation and stifle access to markets for gas producers. "I don't know how pipeline sponsors can prepare for something like this," said Christi Tezak, managing director of ClearView Energy Partners LLC.
The kind of steel used in pipeline and midstream infrastructure is a specialized product that is not produced by many U.S. manufacturers, according to the pipeline industry and some observers, including Lucier. Larger-diameter and thick-walled interstate pipelines require a certain amount of flexibility to cope with ground movements and earthquakes. A 25% rise in the cost of a primary material will make developers question whether such projects are worth building, Lucier said.
If gas industry representatives cannot win an exemption from an across-the-board tariff, cost impacts would also hit export projects, both LNG export terminals and pipelines to Mexico. Mexico's national energy ministry, SENER, has estimated the country will increase gas-fired power generation by almost 50% between 2016 and 2020. Although Mexican tariffs on natural gas or refined products are unlikely, enthusiasm for gas could falter over higher prices and an already-congested pipeline system from Texas.
"The more imminent threat [is] what happens to gas exports to Mexico," Lucier said. "It's not really a trade war or tariffs, so much as Mexico deciding it cannot rely on the U.S., and thus we lose the opportunity to grow our exports to a country that was planning on using them."
