Companies are seeking exemptions on steel for upstream and midstream projects they say cannot be sourced in the US
BP and US oil and gas companies Marathon Oil, Hess and Kinder Morgan are seeking exemptions from US steel tariffs on imported pipelines and other products that they cannot source domestically.
Exemption requests started around two months ago, after President Donald Trump imposed a 25pc tariff on steel imports that now applies to Canada, the EU, Mexico and other trading partners. Oil and gas firms are hoping to use a tariff exclusion process that only applies to specific steel products not adequately available in the US or needed for national security. The upstream industry says tariffs will drive up the cost of drilling wells and building pipelines that consume large amounts of steel.
The US Commerce Department, which is processing the requests, this week approved the first 42 steel tariff exemptions. But it is working through a backlog of 20,000 requests, far more than the 6,000 it expected. US commerce secretary Wilbur Ross says there is a "high probability" relatively few exemptions will be approved because many of them are not substantive.
BP has requested tariff exemptions for nearly 14,000 t/yr of steel products it says are not available from US producers. Around 10,000 t/yr of this will be used in the firm's 140,000 b/d Mad Dog 2 project in the US Gulf of Mexico, so must be capable of handling sour crude. "No US mill can supply line pipe that meets the stringent environmental specifications for Mad Dog 2," BP says.
Marathon is seeking exemptions for 5,000 t/yr of steel pipes from Japan for sour crude wells, while Austrian pipe producer Voestalpine Tubular wants dispensation for 50,000 t/yr of steel it plans to import for the US firm. The exemptions will support a "national security objective" of energy independence, Marathon says. And Hess is seeking exemptions for 3,700t of Japanese steel for its 80,000 b/d Stampede deepwater field in the Gulf of Mexico.
US pipeline operators are also seeking tariff exemptions. Kinder Morgan last month requested an exemption for "highly specialised" 42-inch (1.1m) diameter pipe it plans to import from Turkey for its $1.8bn Gulf Coast Express natural gas system, a 514-mile (827km), 2bn ft³/d (206bn m³/yr) capacity line from the Permian basin to Agua Dulce, Texas. The pipeline is "critical" to national security because it will reduce bottlenecks in associated gas production in the Permian basin, enabling 1mn b/d of additional oil production, Kinder Morgan says.
And Plains All American Pipeline sought an exemption in April for 526 miles (847km) of 26-inch diameter pipe that will transport oil from the Permian basin to Corpus Christi, Texas. US producers do not make this type of pipe, the firm says.
Steeling for a fight
But US steelmakers are fighting some of the exemption requests. Pittsburgh-based US Steel is opposing BP's request to remove tariffs on 1,150 t/yr of casing because it is developing a product that can meet the "exact specifications" the company needs. And counterparts JSW Steel, Berg Steel and Dura-Bond oppose Plains' request as they too say they have the products to fulfil its requirements.
The US steel tariffs come on top of escalating costs for new pipeline projects. Capital expenditure (capex) on oil and gas lines to 2035 is estimated to average $14.7bn/yr, up from $8bn/yr in 2016, according to US natural gas pipeline association INGAA.
Higher spending will partly be driven by increased pipeline development. But construction costs have risen by more than 50pc over the past three years. Higher costs for material and labour, the difficulty of construction in high-population areas and permitting delays will also raise capex, INGAA says.
