Faced with higher costs because of U.S. tariffs on imported steel needed for its pipeline buildout, Plains All American LP is moving forward with a surcharge to make up the difference as it seeks an exemption from the Department of Commerce, according to management.

During a question and answer session during the conference call to discuss the Houston-based midstreamer’s 2Q2019 financial results, CEO Willie Chiang was asked about the impact of the Trump administration’s tariffs on the company’s plans to further build out its pipeline network.

“As with everything, it seems, these days there are a lot of moving parts,” Chiang said. Referring to a Permian Basin oil pipeline system, he said, “On Cactus II, we ended up buying international, non-U.S. steel because the U.S. steel producers were not able to produce the pipe in the spec that we wanted. The key point on this is we purchased the steel before the tariffs were implemented.

“And so we are going through the exception process with the Department of Commerce and will continue to do that to try to get resolution on it,” the CEO said. “As a parallel path, we have moved forward with a surcharge, and if we’re able to get an exemption, clearly, we would stop the surcharge and rebate it as appropriate.

“But again, this is something that I highlighted early on, where we’ve got to make sure that the regulations and the rules are clear for people before they make the investments on these projects.”

Chiang has previously spoken out on the potential negative impacts on U.S. energy development from the steel tariffs, highlighting “significant flaws” in the administration’s process for implementing them.

Chiang’s latest comments come during a volatile week of trading in the stock market that has pointed to anxieties over the escalating trade conflict between Washington, DC, and Beijing. Energy stocks were among those swept up in what looked to be another down day for markets Wednesday as investors reacted to news of overseas interest rate cuts amid the global trade uncertainty.

Meanwhile, Chiang said the Permian-to-Gulf Coast Cactus II oil pipeline is mechanically complete from Wink in West Texas to Ingleside, which is near Corpus Christi in South Texas.

“As of today, the line is approximately 50% filled with crude, and we anticipate entering initial commercial service sometime next week,” Chiang said. “We expect to have direct Cactus II connectivity to Corpus in service by the end of 1Q2020.”

Earlier this week, Plains also revealed the addition of three more sponsors to its Wink-to-Webster joint venture.

“We have continued to enhance the Wink-to-Webster project, further aligning with industry partners to optimize the project. In that regard, MPLX, Delek US and Rattler Midstream have joined as partners…and we expect an additional undisclosed third party to announce their ownership in the project in the near future,” Chiang said.

As Plains continues to respond to demand for Permian takeaway, the operator acknowledged a moderating growth outlook among producers in the region, which have come under increasing pressure to live within cash flow.

“We continue to monitor that and stay in front of our customers,” said Executive Vice President Jeremy Goebel, who is in charge of commercial operations. “We have moderated our forecasts in the Permian. That’s reflected in our guidance forecast for the rest of 2019. We had a reduction coming into the year to 400 horizontal rigs and steady state for the second half of this year. You’re roughly at 390 now, so marginally, it is a bit lower, but it’s very consistent with our views.

“But on the margin it is lower, and we’ll continue to monitor producers’ views and how they look to operate within cash flow and specific to our customers on our pipeline, and we’ll stay on top of that.”

As the company pursues a number of growth projects aimed at getting additional crude volumes from the Permian, Midcontinent, Rockies and Western Canada to markets in the Gulf Coast, Plains is increasing its 2019 capital program by $150 million, management said.

Volumes for both the Transportation and Supply and Logistics segments were up year/year for the quarter. In the Transportation segment, 2Q2019 volumes totaled 6.787 million b/d, up from 5.797 million b/d in the year-ago period. Supply and Logistics volumes reached 1.260 million b/d during the quarter, up from 1.202 million b/d in 2Q2018.

Plains reported net income for the quarter of $446 million (54 cents/share), versus a net income of $100 million (7 cents/share) in the year-ago quarter.