The steel tariff proposed by Trump is an issue for the oil and gas industry
Published: 06 Mar 2018 By Matt Cook
President Trump’s recent plan to impose a 25% import tariff on steel may well be a positive development for the likes of OPEC and Russia. The new plan will greatly benefit steel areas of America, protecting residential producers from any competition from foreign businesses. For the oil and gas sector, however, it is a potential problem as the tariffs will cause an imminent rise in prices for oil producers.
The oil and gas sector depends greatly on steel from overseas to develop a range of projects including pipelines, LNG terminals, and petrochemical plants. A recent report delivered by International Consultants (ICT), for pipeline industry, highlighted that over 75% of the steel used in pipelines was imported, either as a finished product or in raw material form for further development in the US.
The steel utilised in oil pipelines is passed through a detailed specification process to certify the material will not corrode or fracture within its lifetime which can be higher than 30 years. Jack Gerard, the CEO of the American Petroleum Institute highlighted that the US oil industry and more specifically natural gas relies heavily on steel products for many projects that are not supplied by US steelmakers. Concerns are being voiced to whether US steelmakers can manage the volumes and production of steel required for the industry.
Once the tariffs are in action, pipeline businesses will experience a rise in the cost of steel products. The increased cost will most likely be pushed on to the oil and gas producers who require their lines as well as the US consumer. An increase of 25% in cost pipe imports and associated fittings would increase the overall costs of a 300 mile oil pipeline by US$75 million. If this scenario was applied to a larger project such as the pipeline project in Dakota, the cost would increase to around US$300 million.
At present, the US oil and gas industry is producing record levels of crude oil and gas and establishing its place as the largest oil and gas producer in the world. There is also an additional focus on pipeline projects to create the energy required across the nation as well reduce the influence of both OPEC and Russia. The proposed tariff, however, is being viewed by the oil and gas industry as a move that stands against Trump’s own decision to create a dominant energy industry in the US.
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