Officials with the American Petroleum Institute (API) said their member companies have been frustrated with the process the Trump administration established for requesting an exemption to tariffs on imported steel, with several petitions already rejected on vague grounds.
Last March, the Department of Commerce outlined a procedure for the oil and natural gas industry to request an exemption from the 25% tariff on steel imports that took effect on March 8. The industry and its allies argue that specialty steel products used in pipelines and at liquefied natural gas (LNG) export facilities meet the criteria for an exemption because there is an insufficient supply of comparable products from domestic steel manufacturers.
According to API, its member companies have so far submitted more than 80 petitions for an exemption. Of those, Commerce’s Bureau of Industry and Security (BIS) has ruled on just 17 petitions — granting eight and denying nine.
“We’ve had member companies have some of their petitions approved, and those same companies have had some of their petitions denied,” API’s Aaron Padilla, senior adviser for international policy, told NGI on Monday. “They’re still working to discern the difference and distinction that Commerce has drawn between petitions for very similar products from the same supplier and the same country.”
Padilla said in some cases, API members have laid both approved and rejected petitions side-by-side and found few differences. The BIS has given a “very limited explanation” for why it rejected the petitions.
“The reason that’s been given has been that there was insufficient information provided, that it was not a complete submission,” Padilla said. Separate reviews by both API and member companies have shown that “it’s not clear” where the insufficiencies lie. The companies “are individually in the process” of contacting Commerce and the BIS for clarifications.
The White House said the tariffs are justified on national security grounds, citing Section 232 of the 1962 Trade Expansion Act and Section 301 of the Trade Act of 1974. Last week, the administration unveiled a list of $200 billion in Chinese-made products that could be subject to a new 10% tariff. The list included LNG and offshore oil and natural gas drilling and production platforms. Beijing vowed to immediately retaliate, should the new tariff take effect in late August or early September.
API’s Chris Kelley, director of federal relations, said he thought the widening trade wars with China, Canada, Mexico and the European Union, would continue.
“They’re putting a lot of companies through a lot of problems, heartache and paperwork,” Kelley said. “It seems to be a very arbitrary process that the Department of Commerce is instituting.”
Kelley said it appeared unlikely that the White House had instituted the tariffs simply as a way to gain leverage over America’s trading partners and get better trade deals. “I couldn’t imagine why they would go through with the rulemaking process, the country exemption process and the product exclusion process, which are very burdensome, complicated and challenging for companies to go through, if they weren’t serious about it. We haven’t seen any indication that they’re going to let up on these particular issues. This seems like a trend that will continue.”
Padilla added that the domestic steel industry is not on the same side as the oil and gas industry over the tariffs.
“The petitions are the clearest cut examples of specialty steel products that our member companies cannot source from U.S. manufacturers,” Padilla said. “Yet many of those petitions are still attracting objections from U.S. steel manufacturers, who are stating that they can manufacture a product that’s close enough in the specifications that our member companies require.
“That would indicate that there’s probably not going to be a common understanding of what is procurable domestically versus what is only procurable from outside the United States. On some products where U.S. manufacturers have objected, they have a different point of view than our member companies.”
Plains Says Rejection ‘Unjust’
According to BIS records, Plains All American Pipeline LP’s request for a tariff exemption was denied on Monday. Plains requested an exemption in advance of building the Cactus II Pipeline, a $1.1 billion project designed to connect the Permian Basin in West Texas to the Corpus Christi area in South Texas with a takeaway capacity of 585,000 b/d.
Plains’ filing showed that it had previously contracted Greece’s Corinth Pipeworks Pipe Industry SA for 26-inch outside diameter (OD) high frequency welded (HFW) pipe needed for the project. Plains said Corinth was “one of only three mills in the world” capable of producing the pipe, and the other two mills are in China and Japan. “There is no production of such pipe within the U.S.,” Plains said.
“Even in the hypothetical scenario that a domestic mill was able to technically manufacture 26-inch OD HFW pipe, if a purchase order was issued today, the mill would not likely be able to meet the pipeline system’s completion targets, particularly given that the first delivery…is required in June 2018,” Plains said. “Furthermore, the foregoing statement does not even take into consideration a mill’s current delivery commitments for previously placed orders. Months of advanced planning are needed in such large construction projects.”
BIS records show that Berg Steel Pipe Corp., which is based in Panama City, FL, had objected to the request. Berg said while no domestic steel manufacturer could produce 26-inch OD HFW pipe, there were many domestic sources for an alternative product: double submerged arc welded pipe, in both longitudinally welded and helically welded forms.
Plains called the rejection “unjust” because it had ordered the steel in late 2017, before the tariffs were enacted. The company said it would review its options to challenge the decision, adding that the project would “move forward as planned.”
“Collecting a tariff on steel pipe orders for projects like this constitutes a tax on the construction of critical U.S. energy infrastructure, which is a significant unintended consequence of current trade policy and risks U.S. energy security and American jobs,” a Plains spokesperson told NGI on Tuesday. “The steel tariff exclusion request review process is flawed and does not allow for an applicant to effectively engage in the review process.”
The review process, according to Plains, “is opaque to applicants and appears to rely on comments that are not required to be substantiated, and on a review of undisclosed data by staff without meaningful interaction with the applicants. The process is further complicated by more than 10,000 exclusion requests and associated documents needing attention in a limited window of time. This process must be improved to best serve the interests of our country.”
API Executive Vice President Marty Durbin said the decision by BIS “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. This is not the way to achieve the administration’s commendable goal of U.S. energy dominance.”
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