Tariffs hold back oil and gas growth

Only two barriers stand in the way of Texas’ continued growth: a labor shortage and President Donald Trump’s tariffs on imported steel.

The energy industry needs steel as it sets records for oil and gas production. It needs pipe to drill wells in the Permian Basin and Eagle Ford Shale and pipe to carry the crude oil, natural gas and other products to Gulf Coast markets. Trump’s tariffs on imported steel puts this productive piece of the American energy renaissance in limbo.

Last month, producers drilled 1,436 new wells across the country, with the Permian and the Eagle Ford leading the way, according to the Energy Information Administration. Each well goes thousands of feet into the ground and then stretches horizontally through shale rock for a mile or more, requiring tons of steel.

Production in the Permian is exceeding pipeline capacity. Oil companies are trying to track down rail cars and tanker trucks to haul their crude, but the lack of takeaway capacity is suppressing prices and discouraging new investment and economic growth.

“Crude oil pipelines out of the Permian are filled to capacity,” wrote Taylor Robinson, a pipeline industry analyst at RBN Energy. “Even wads of cash may not be enough to quickly round up the hundreds — thousands? — of trucks and drivers that would be required to make a significant dent in the Permian’s takeaway shortfall.”

The industry needs thousands of miles of new pipelines, but the Trump administration has made affordable steel challenging to find by capping im-

ports from South Korea, the industry’s biggest supplier, and slapping a 25 percent tariff on other imports.

Gov. Greg Abbott wrote Trump last month asking him to exclude oil pipe.

“If the new tariffs continue to drive up the cost of oil and gas production,” he wrote, “America’s quest for global energy dominance could be significantly hindered.”

Last week, though, the Trump administration denied an exclusion request from Plains All American, which is building a $1.1 billion, 526-mile pipeline from the Permian Basin to Corpus Christi. Executives said the 16-inch pipe specified was unavailable from U.S. manufacturers.

Berg Steel Pipe Corp. in Florida opposed the exclusion, saying it could supply a similar product made with a different process. The Commerce Department sided with Berg and said Plains would have to pay the tariff if it imported the Greek steel it had purchased before the tariffs were imposed.

The Commerce Department reports that of 26,400 exemption requests submitted, it has approved 267, denied 452 and rejected 3,385 requests for being improperly completed.

“The administration’s arbitrary process to determine these exclusions lacks transparency as it’s not clear how and why certain exclusion petitions are granted or denied,” said Kyle Isakower, vice president for regulatory and economic policy at the American Petroleum Institute, the industry’s main lobbying arm. “What is clear, though, is that implementation of tariffs on imported steel undermines domestic energy production.”

The Commerce Department says it will grant exclusions if there is insufficient domestic supply or the tariff would create a national security issue. But those are standards are subjective, and steel prices are on the rise.

“Prices since the start of the year are up 40.4 percent for hot-rolled coil,” a steel industry benchmark, Michael Fitzgerald, a steel industry analyst with S&P Global Platts, said. “I don’t think you can attribute the price increases to just tariffs, and you can’t attribute them to just demand.”

The higher prices are pinching the oil and gas industry, which is still recovering from the 2014 oil bust and still faces historically low prices, said Paul Sorenson, co-owner of Tube Supply Co., a supplier to oil field services companies.

“We’re buying as much as we can in the United States, but our business model takes us from France to Italy, Germany, Mexico, Argentina,” he said. “For our products, they are not dumping them. … We are forced to buy them because we can’t find them in the United States.”

Companies can apply for exclusions, but they can take six months to approve. The industry needs steel now.

I support free trade agreements, and I have praised a Houston manufacturer who stood up for fair trade against nations that are dumping products in the U.S. And I believe Trump’s China tariffs, and WTO suit, make sense against a nation that cheats, like China.

Blanket tariffs, though, carpet bomb the economy, punishing both good and bad actors. Relying on government bureaucrats to sort out what products should receive exclusions is a nightmare.

The Trump administration needs to rethink its strategy and take a more precise approach to tariffs. The current policy is harming far more U.S. companies than it is helping.