Houston leads rush for steel waivers
Firms cite costs in bids to skirt tariffs
according to Commerce Department data compiled by the Associated Press. Those tariffs, however, have raised costs for hosts of other manufacturers and industries.
Few regions are feeling those higher steel costs as keenly as Greater Houston, where pipe, equipment and other steel-product manufacturers support the growing petrochemical industry and oil and gas business. Domestic oil and gas producers import more than 70 percent of the steel used for line pipe, with 20 percent supplied by Mexico and Canada. In many cases, this material is simply not available from U.S. suppliers in the required quantity or speci- to the U.S. Commerce Department.
Texas accounted for about one in every five of the 43,000 waiver requests since March, when President Donald Trump imposed the duties on foreign steel to protect U.S. steel makers from what he said was unfair competition,
More requests for waivers from steel tariffs have come from Texas than any other state, with 90 percent of those requests coming from companies in the Houston area, according
fications, according to the Texas Independent Producers and Royalty Owners Association.
“Steel imports are critical to the Texas oil and gas industry, including the construction and maintenance of wells, and pipeline infrastructure,” said Ed Longanecker, president of the energy industry trade group. He called the tariffs “a punitive tax on U.S.based producers, large and small, adding significant cost on a per-well (basis) and tens of millions of dollars to some critical infrastructure projects.”
Campaign pledge
The energy industry has been among the biggest critics of the tariffs since Trump invoked his national security powers to impose tariffs not only on rivals such as China, but also allies such as European nations, Mexico and Canada. In doing so, Trump fulfilled a campaign pledge to protect and revive the American steel industry, which has struggled to compete with lower-cost foreign suppliers.
It appears to have worked, for now. U.S. Steel reported that its profits nearly tripled to $1.15 billion in 2018 from $387 million the prior year, before the tariffs came into effect
Those profits, however, have likely come at the expense of energy and other industries. Prices for drill pipe and pipelines soared in some cases by as much as 20 to 30 percent, according to Texas Independent Producers and Royalty Owners Association.
Those increases are coming as oil and gas companies contend with lower oil prices. Crude prices plunged 40 percent in the last three months of 2018 and remain about 30 percent below the recent peak of $76 a barrel in early October. Crude settled at $54.41 a barrel in New York Thursday.
‘Critical’ need
In their waiver requests, several companies in Houston went so far as to argue that the development of their projects were essential to national security, stating that the growth of the energy and oil and gas sector are critical to the United States’ position as a leader in the oil and gas production. Midship Pipeline Co., an affiliate of the Houston liquefied natural gas exporter Cheniere Energy Inc., filed a request for exemption in order to build a 200-mile natural gas pipeline from the Anadarko Basin in Oklahoma to the Gulf Coast. In the request the company wrote that if the steel pipe was not delivered on time “the entire project will be jeopardized.”
“There is no other steel manufacturer in the world, much less in the U.S. that is capable of picking up an order such as this one,” the company wrote. “Not only would it be impossible to receive the required quantities, it would similarly be impossible to receive the required quality.”
Of the waiver requests submitted by Texas companies, 15 percent have been granted and 7 percent were denied. Some 78 percent of the requests are pending.
Clout matters
Those companies that were granted waivers tended to need in high-end specialty steel for oil, gas and petrochemical projects. That type of steel is not widely available in the United States.
Companies that use low-end steel for basic construction, such as steel bars for building roads and sidewalks, are not as likely to get an exemption, said Ed Hirs, an economist at the University of Houston.
“I think you’ll find that these (energy-related) companies have better political connections than your standard companies,” Hirs said. “I would expect that where folks are getting tagged is the lowend rebar and other things like that for construction that don’t have the political clout that the oil patch does.”