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Steel quotas 'unjust' and will derail pipeline projects, Plains CEO says

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Steel quotas 'unjust' and will derail pipeline projects, Plains CEO says

U.S. quotas on the niche steel products that the oil and gas industry needs to grow will block the completion of badly needed pipelines, the CEO of one of the top 10 American midstream companies said June 4.

"Steel tariffs in our view are unjust," Plains All American Pipeline LP CEO Greg Armstrong told an audience of energy executives, academics and federal energy officials at the Energy Information Administration's 2018 Energy Conference in Washington, D.C.

President Donald Trump removed trade exemptions for Canadian, Mexican and the European Union products on May 31, subjecting the foreign steel to increased taxes while adding a quota designed to limit steel imports. The oil and gas industry had lobbied strenuously and unsuccessfully for exemptions from Trump's new trade rules. Many of the specialty steel products used by pipeline developers and exploration and production companies are not made in the U.S., according to comments by the oil and gas industry's biggest trade group, the American Petroleum Institute.

"Almost intolerable is the quota system on steel coming to our shores," said Armstrong, who chairs the National Petroleum Council. "We weren't sure if we were going to be able to actually unload because of the quota system. [Building] 80% of the pipeline doesn't do us any good."

"A lot of the steel pipe we're buying right now is not in the U.S. — the size and the specification. We don't think you should have to pay a tariff for something you can't buy in the U.S.," Armstrong said.

Answering questions from the audience of several hundred, Armstrong said the poor performance of midstream equities is the result of investors rotating out of pipeline companies that were spending heavily on new projects to meet growing demand from oil and natural gas shale plays. The overspending will end shortly as the industry pauses, he said, and pipeline companies will start to see increased revenues as the price of dwindling pipeline capacity increases.

"Midstream's been very challenging the last couple of years," Armstrong said. "Now, in some areas [such as] the Permian, we're starting to use up that excess capacity." Armstrong noted that a price difference for oil between the Permian and the national benchmark pricing hub in Cushing, Okla., has steadily increased because drillers have fewer and fewer ways to get the product out of the basin.

"Basically everybody's trying to get on a ship and there's no space available," Armstrong said. "Then the price of tickets goes up."