U.S. oil pipeline companies, producers seek relief from
Send a link to a friend
[June 19, 2018]
By Liz Hampton
HOUSTON (Reuters) - Major U.S. energy
companies including Plains All American Pipeline <PAA.N>, Hess Corp <HES.N>
and Kinder Morgan Inc <KMI.N> are among many seeking exemptions from
steel-import tariffs as the United States ratchets up trade tensions
with exporters including China, Canada and Mexico.
There have been nearly 21,000 requests overall for exclusions submitted
to the U.S. Commerce Department since the Trump administration imposed
levies this year. Of those, more than 500 petitions involve pipes and
Initial decisions are expected this month, offering the first clues as
to how the administration will balance an agenda favoring oil and gas
exports while also supporting the U.S. steel and aluminum industries.
For the energy industry, the potential for relief has taken on added
importance after China surprised markets last week by proposing 25
percent levies on about $1 billion a month in U.S. oil imports in
retaliation for U.S. tariffs.
The pipeline industry could face higher costs from tariffs as about 77
percent of the steel used in U.S. pipelines is imported, according to a
2017 study for the pipeline industry. Benchmark hot-rolled U.S. steel
coil prices are up more than 50 percent from a year ago, according to
S&P Global Platts.
Pipelines from the nation's largest oilfield in west Texas to the Gulf
Coast are nearly full, depressing crude prices as output is projected to
rise by about 850,000 barrels per day this year, and significant
projects are not expected to be completed until at least next year.
Plains sought a tariff exclusion for its 500-mile Cactus II oil
pipeline, which will connect West Texas oil fields to export docks near
Corpus Christi, Texas. This month, it expects to receive its first
material from Corinth Pipeworks SA, a Greek manufacturer, according to a
Commerce Department filing.
"We think tariffs would be unjust, but we can tolerate" them, Greg
Armstrong, chief executive of Plains All American Pipeline <PAA.N>, told
investors this month, adding that tariffs and import quotas could hurt
U.S. production growth.
No U.S. mills can produce pipe with the specifications needed for
Plains' line. Only three mills in the world make such pipe, and delivery
delays could exacerbate constraints, the company wrote in its petition,
affecting the price of oil from the largest U.S. oilfield.
The 585,000-barrel per day line is due to start flowing next year, just
as analysts warn a bottleneck of crude could force some producers to
shut in production.
[to top of second column]
A pump jack lifts oil out of a well, during a sandstorm in Midland,
Texas, U.S., April 13, 2018. REUTERS/Ann Saphir/File Photo
Total pipeline, rail and local refining capacity from the Permian Basin oilfield
in March was 3.175 million barrels per day (bpd), according to energy
intelligence service Genscape, just shy of the oilfield's roughly 3.3 million
bpd output in June.
Rival pipeline operator Kinder Morgan also wants an exclusion for its $1.75
billion Gulf Coast Express natural gas pipeline from West Texas to the U.S. Gulf
Coast. It ordered 47 percent of specialized pipe needed for the project from
Turkish steel maker Borusan Mannesmann.
Only one U.S. producer could meet Kinder Morgan's needs, but it could not meet
the volume required within the necessary timeline, Kinder said in a filing.
The United States is committed to acting on exclusion requests within 90 days of
a petition being posted for comments, a Commerce Department spokesman said. The
United States could offer refunds on tariffs paid since a petition became
For companies unwilling to take the risk of having a request denied, "it may
mean cutting back or pushing the timeline out farther" for some projects, said
Brigham McCown, former head of regulator U.S. Pipeline and Hazardous Materials
Oil and gas producer Hess cited safety concerns in a request to use Japanese
pipe for its Stampede offshore project in the U.S. Gulf of Mexico.
"Without the ability to use this product, we will not be able to guarantee
corrosion resistance in deepwater operations using other currently available
steel products - potentially compromising both safety and environmental
protection," the company wrote in its filing.
Between 2015 and 2016, the U.S. imported between about $5 billion and $8 billion
in steel line pipe, valves and fittings for the pipeline industry, according to
a study by consultancy ICF for the American Petroleum Institute.
"There's lots of concern that the increased cost in pipe will increase the costs
for our oil," said North Dakota Senator Heidi Heitkamp, who wants Congress to
vote on tariffs imposed under national security grounds. "You pull on one string
in international trade and it unravels in ways you could not have predicted."
(Reporting by Liz Hampton; additional reporting by Ernest Scheyder; Editing by
[© 2018 Thomson Reuters. All rights
Copyright 2018 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed.
Thompson Reuters is solely responsible for this content.