President Donald Trump's plan to place steep tariffs on imported steel and aluminum is hitting a raw nerve in the energy industry, which has been racing to lay enough pipelines to accommodate booming U.S oil production.
Alaska Republican Senator Daniel Sullivan, speaking at IHS Markit's annual CERAWeek energy conference on Monday, said he disagrees with the sweeping tariffs on all trade partners and said they would raise costs for the energy sector. Sullivan is active in setting U.S. energy infrastructure policy and introduced the Rebuild America Now Act.
"There's a way to do it that focuses on the problem — the real problem — which is China, and do it in a way that we align ourselves with our allies, not alienate them, and I worry that this approach right now could have the opposite effect," said Sullivan.
Sullivan applauded Trump for trying to tackle the problem of cheap steel imports, but said the Trump administration should unite U.S. partners around the goal of addressing overcapacity in China's steel industry. He said Trump could also aim to disrupt transshipment of Chinese steel, in which countries avoid tariffs by purchasing Chinese supplies, refabricating them slightly and sending them to the United States.
In a trade war, Sullivan says he worries foreign countries could punish his state by slapping tariffs on products like seafood and energy supplies.
The U.S. energy industry meets in Houston as U.S. oil output is setting new records, and the International Energy Agency Monday said the U.S. would account for 80 percent of world oil growth over the next three years.
Plains All American Pipeline CEO Greg Armstrong told the conference that he spent the weekend discussing the tariffs. His company has $1.5 billion in projects in the works, including a pipeline to take oil from the Permian Basin to Corpus Christi.
Armstrong said the 25 percent tariff on steel proposed by Trump is on some products that cannot be made in the U.S. The steel needed for 26-inch pipelines is manufactured in three countries, none of which are the U.S.
"We'll survive but it's a thornier issue than what's printed in headlines," Armstrong said.
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The cost of a pipeline can be $2 million to $6 million a mile, depending on the terrain where it is laid, according to Colton Bean, director of equity research at Tudor, Pickering, Holt and Co. Materials are 15 to 20 percent of the cost, and steel is part of that. Bean estimated pipeline construction costs could rise 3 to 5 percent if the tariffs are imposed. Bean said the pipelines under construction now already have acquired steel, and it is those expected after 2020 that could be scrambling.
Fatih Birol, executive director of the International Energy Agency, said it was too soon to tell how the tariffs could impact the agency's outlook for growth in U.S. oil production. However, he said they were unlikely to hold back crude exports.
"Cost is a key issue here. But I can tell you, even if it has some impact here and there, the production growth is so strong and the related financial benefits are so lucrative [American oil] will find a way to go to the export markets."