President Donald Trump signed orders March 8 enacting tariffs of 25% on global imports of steel and 10% on aluminum, a move that drew concern from the oil and gas industry over implications for competitiveness and construction costs.
Trump said the tariffs are in the nation's economic and security interests on the grounds that the U.S. relies too heavily on imports of steel and aluminum for military production. However, the announcement left some industries and Republican lawmakers worried about a trade war with U.S. partners and higher costs and job losses for U.S. companies that rely on imported steel and aluminum.
For U.S. pipeline companies, it could cause project cancellations and hurt gas exports to Mexico. According to Washington policy experts, an increase in costs of steel, a primary material in infrastructure projects, could hamper gas transportation and stifle access to markets.
"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 Capital Alpha Partners LLC Managing Director James 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. 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.
Prior to Trump's order, a coalition of oil and gas industry groups in a March 7 letter to the president said the tariffs on imported steel could actually compromise, instead of protect, national security and U.S. economic development by limiting access to key pipeline materials.
The oil and gas that move through pipelines support U.S. power generation, residential and commercial heating, an array of industrial work and the transportation sector, the industry groups said in their letter. "National security requires pipelines."
"Pipeline-grade steel is a high-cost specialty product in a cyclical niche market that some domestic manufacturers have moved away from," they said. "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."
As for the domestic LNG industry, the tariffs could result in proposed multibillion-dollar export infrastructure projects becoming uncompetitive if costs rise for key materials, experts warned. Washington, D.C.,-based LNG Allies said in a letter to Trump that the U.S. "could easily lose out" on global market share as costs increase for already pricey export terminals.
Another trade group, the Center for Liquefied Natural Gas, said it would be unfortunate if a steel tariff creates new barriers to LNG projects after the Trump administration took "meaningful steps" to streamline the federal regulatory process for natural gas infrastructure.
"It's an existential shock to these projects if their costs are increasing," said Jamie McInerney, executive director of the Trade Leadership Coalition, an industry-funded nonprofit that promotes global trade. "There are a lot of LNG facilities that are at a critical stage now ... To increase the cost of key inputs to those projects frankly puts them at risk."
Echoing the complaints of the oil and gas industry, Sen. Daniel Sullivan, R-Alaska, said the tariffs would hurt the competitiveness of steel-intensive energy infrastructure and could lead to economic retaliation by other countries.
