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Tariff Exemption Rulings Mixed for Oil and Gas

Wednesday, July 18, 2018

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The Department of Commerce has issued some of its first decisions on oil and gas companies’ requests for exemptions from the new U.S. steel tariffs, with a major pipeline firm losing its bid, but two multinational corporations succeeding in theirs.

Plains All-American Pipeline was denied an exemption for steel it plans to import from Greece for its Cactus II pipeline, an oil pipeline under construction in Texas. The pipeline firm said the steel it seeks for the pipeline can only be made overseas, but according to Reuters, Berg Steel Pipe Corp., of Florida, opposed the request, saying it could produce the pipe needed, albeit through a different process.

Pipes
© iStock.com / rootstocks

The rejection of Plains All-American Pipeline's tariff exemption request is the first ruling on an exemption related to a pipeline project.

Cactus II will stretch from the Permian basin, in west Texas, to the Gulf of Mexico near Corpus Christi. The 550-mile pipeline, actually two separate but connected lines, is expected to cost $1.1 billion. The company told Reuters it still plans to use the Greek steel, and is reviewing its options for appeal, noting that it ordered the product before the tariffs went into effect.

Chevron, Shell Rulings

While some other pipeline and oil and gas companies are still awaiting decisions on their exemption requests, Chevron and Shell have both had mixed luck.

Chevron has had three requests granted and three denied. All six were requests for different forms of tubular stainless steel from Nippon Steel and Sumimoto Metals in Japan for exploration, well formation and drilling; the company argued that similar products made in the U.S. do not have sufficient corrosion resistance for environments with high carbon dioxide and hydrogen sulfide concentrations.

Offshore rig
© iStock.com / Rob_Ellis

Shell and Chevron sought exemptions for stainless steel tubular products for offshore drilling and were partly successful.

Shell Offshore has thus far had five requests granted and eight denied. As with Chevron, Shell’s requests were largely for specific stainless components from Nippon Steel and Sumimoto Metals, because the company says no other manufacturer makes a similar product that can stand up to the high pressure and temperatures as well as carbon dioxide and hydrogen sulfide in the environments its offshore operations entail.

Kinder Morgan has two requests pending for its Gulf Coast Express Pipeline; it argues in its applications that there are no U.S. suppliers that can produce the necessary quality steel pipe needed for the project on its previously committed timeline. Gulf Coast Express is a natural gas line, now under construction, to connect the Permian basin with Agua Dulce, Texas, near Corpus Christi. The project is expected to cost $1.75 billion.

Industry Response

The American Petroleum Institute, a trade organization representing oil and gas companies, warned Tuesday (July 17) that denying energy firms exemptions “could have negative consequences for America’s natural gas and oil industry and consumers that depend on affordable energy.”

Making reference presumably to the Plains All-American ruling, API Executive Vice President Marty Durbin said in a statement, “This ruling ignores the legitimate and critical needs of the natural gas and oil industry for global sourcing of specialty steel products essential to delivering energy to the American families.

“The administration’s decision-making is not serving the interests of energy consumers and American businesses, as these tariffs are expected to increase the cost of sourcing steel for the oil and natural gas companies, which in turn could increase the cost of energy to consumers.”

   

Tagged categories: AS; Asia Pacific; Government; NA; North America; Offshore; Oil and Gas; Pipelines; Program/Project Management; Stainless steel; Steel

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