Steel Tariffs Hinder US Energy Growth

Steel Tariffs Hinder US Energy Growth
AP Photo/Loren Elliott

The Trump administration has installed tariffs on imported steel, and their effects on steel-intensive business and industry sectors remains to be seen. The oil and gas industry, particularly the pipeline sector, could be significantly impacted, ultimately affecting consumers and America’s energy security.

Here are three big problems that steel tariffs pose for the natural gas and oil industry:

1. Higher costs, project delays. You need drill pipe to drill natural gas and oil wells and pipelines to deliver that production from the field to processing plants and refineries — and it takes steel to make all that pipe. Given that a lot of that steel comes from very specialized factories abroad, tariffs on imported steel could put a serious dent in U.S. production and pipeline projects.

Potential economic impacts loom. The whole point of a tariff is to increase domestic prices so that domestic firms can compete with foreign rivals: higher costs for oil and natural gas projects. In turn, higher energy costs can ripple throughout the economy, affecting businesses and manufacturers, who’ve been helped in recent years by a thriving domestic natural gas and oil industry.

2. Will they manufacture steel in the U.S.? It’s a big question whether domestic steelmakers will ramp up production to supply users who previously relied on imported steel. Consider that expanding plants and upgrading current capacity to make the high-quality steel needed by our industry could cost tens of millions of dollars per facility.

There are a couple of reasons they might not incur those costs. One is the cyclical nature of the natural gas and oil industry and its small part of the domestic steel market: just 3 percent. Another is the fact that the next administration could eliminate the tariffs, which means a steel manufacturer can’t count on a long-term increase in demand for their product that would justify the cost of plant expansions and upgrades.

3. Steel delayed = energy delayed. An ICF report last year detailed the impacts of tariffs on the U.S. pipeline sector, warning of impactful delays. According to the report:

Because of this lack of substitutes, heavy reliance on imported goods and materials, the long lead time required for many items, and the fact that several of these items are not made in the U.S currently, an immediate implementation of stringent domestic content requirement for line pipe, fittings, and valves would mean that most oil and gas pipeline construction projects would be delayed or stalled.

Steel supply restrictions could translate into delayed or stalled pipeline construction, which means delayed or stalled natural gas and oil transportation.

There’s already a pipeline shortage in the Permian Basin, the United States’ largest oilfield. A report by the Dallas Federal Reserve says that Permian production could exceed transport capacity between the middle of this year and mid-2019 if new pipelines aren’t brought online. A chart from the Fed’s report (see below) shows projected oil production and an expected pipeline shortfall.

Restricted pipeline capacity from a producing area such as the Permian could have rippling energy and economic effects if companies are forced to scale back natural gas and oil production. Jobs and all kinds of economic activity associated with energy production could be negatively impacted. While there is a federal process for obtaining an exclusion or exemption from the steel tariffs, the process is labyrinthine and unpredictable.

It’s hard to overstate the impacts the administration’s steel tariff may have — and may already be having — on the natural gas and oil industry, with possible effects on local, regional, and national economies, including our energy transportation system.

Now is not the time to erect impediments to the U.S. energy renaissance.

Mark Green is the Editor of Energy Tomorrow, a project of the American Petroleum Institute.

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