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Oil and gas sector worries of accelerating impacts as White House expands steel tariff reach

Pittsburgh — Oil and gas industry interests feared higher materials costs, supply chain headaches and risks to trading relationships, following the Trump administration's decision to expand steel and aluminum tariffs to cover the European Union, Canada and Mexico.

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President Donald Trump decided to impose 25% tariffs on steel imports from Canada, Mexico and the EU at midnight Thursday, after temporarily exempting the countries in March.

S&P Global Platts news feature: Canada, EU, Mexico to be subject to US metals tariffs

Josh Zive, a trade attorney with Bracewell, said industries dependent on steel have already seen increases in materials prices and longer lead times for accessing materials. "It's difficult to perceive any scenario in which that doesn't increase" at an accelerated pace, now that the tariffs are expanding to the additional trading partners, he said. In addition, he predicted the Department of Commerce will see thousands of new exclusion requests filed, adding to the thousands waiting for action from the agency.

Current domestic hot-rolled coil prices are approaching $900/st in the US, with the daily Platts TSI US HRC assessment closing at $893.50/st Thursday, up $4.75/st from Wednesday. Spot offers for hot-rolled coil, the benchmark, bellwether steel product in the US, were heard as high as $960/st Thursday, however mills seem to just be testing the water at levels above $900/st and no transactions were heard concluded at this level.

Based on a breakdown of data from the American Petroleum Institute, about 30% of 2017 imports of steel used by the oil and natural gas industry came from Canada, Mexico and the EU. The White House said it struck agreements with Australia, Argentina and Brazil that would exempt them from tariffs but impose alternative means to "address the threatened impairment to our national security posed by steel articles."


The added tariffs will "cause a slowdown in oil and gas exploration and production activity for an industry that is still in recovery mode, which will result in job loss, decreased production and related tax revenue, negatively impacting many areas of our state and national economy," said Ed Longanecker, president of the Texas Independent Producers & Royalty Association, in an email. "If you consider that US oil and gas companies spent $8 billion to $9 billion on pipe last year alone, this would increase material cost by more than $2 billion dollars per year if they sourced all of that material from outside of the United States." Quotas, if implemented as a fallback for tariffs, would have greater consequences if the products are made unavailable, he warned.

The oil and gas industry has made repeated pitches to the administration to pull back from or temper its approach. API last week wrote to Trump urging the administration to make the country exemptions permanent, without the imposition of alternative measures such as quotas, and to expand the list of exempted countries. The Center for LNG recently wrote the Commerce Department urging an industry wide exemption and allowing product specific exclusions to last beyond the year envisioned in the current procedure.

Don Santa, president and CEO of the Interstate Natural Gas Association of America, called the latest action "very troubling" to the US pipeline industry and "inconsistent with the administration's long-standing goal to capitalize on our nation's energy abundance to help bring low-cost energy to American consumers."

API President and CEO Jack Gerard said his group was "deeply discouraged," and warned of disruptions to the oil and natural gas industry's complex supply chain, compromising ongoing and future energy projects.

"Increased prices in specialty steel could threaten the continued domestic production of oil and natural gas and natural gas liquids -- which are at their highest levels of production since 1949 -- and could raise energy costs for US businesses and consumers, while threatening the nation's ability to achieve President Trump's goal of energy dominance," he said.

For companies procuring steel from the newly affected countries, the action adds the 25% tariff, potentially in addition to other market impacts on prices, said one industry official.


Others pointed to broader implications for trading relationships. The EU and Canada promptly announced plans to retaliate against US exports.

The oil and gas industry in Canada, the US and Mexico are highly interconnected, said Katie Ehly, senior policy advisor with the Center for LNG. Interrupting that in any way could have negative consequences for the industry, she added. Tariffs could have implications for the second wave of LNG projects, meaning those still in the federal review process, she said.

CLNG has warned that tariffs could raise costs by 3%-7% for a terminal, adding hundreds of millions of dollars in costs and affecting US LNG competiveness in a global market.

Fred Hutchison of LNG Allies said he does not believe the tariffs threaten viability of US projects, but that anything that drives up costs in a cost-competitive market is "not helpful."

Some energy sector interests are on edge over the general tension on trade. A delegation from the US, including Commerce Secretary Wilbur Ross is headed to China to continue bilateral trade negotiations. US LNG interests have been hopeful efforts to secure greater Chinese purchase of goods will translate into more purchases of US LNG.

The American Association of Oil Pipe Lines, said it "continues to be concerned trade action on steel will delay or cancel US pipeline projects and cost jobs for American pipeline construction workers." It added: "The lingering threat of tariffs or trade wars limiting access to pipe for new pipelines hinders our ability to design, plan and approve multi-year, multibillion-dollar pipeline infrastructure projects."

--Maya Weber and Justine Coyne,

--Edited by Richard Rubin,