US shale shippers to foot bill for Trump steel tariffs

US-China trade friction has led to the imposition of tariiffs on goods, with steel at the heart of the conflict. Now, rising costs are being passed on to other US industries, including fuel. (Shutterstock)
Updated 03 August 2019

US shale shippers to foot bill for Trump steel tariffs

  • Pipeline operators begin to introduce fees to pay for cost of administration’s China trade war

BEIJING: Plains All American Pipeline said it will tack on a fee for users of a new oil pipeline to pay for the cost of the Trump administration’s imported steel tariffs, becoming the first US operator to do so.

In addition to steel levies announced last year, President Donald Trump said on Thursday he plans to expand US tariffs to $300 billion of Chinese imports in a trade dispute that has increased costs for US consumers on everything from steel to electronics.

Houston-based Plains will begin charging shippers a 5 cents per barrel fee on its 670,000 barrel-per-day (bpd) Cactus II pipeline next April to offset higher construction costs from “governmental regulation and tariffs,” according to a filing with the Federal Energy Regulatory Commission.

Plains last year estimated the 25 percent steel tariff would add $40 million to its costs for the $1.1 billion pipeline, which runs 550 miles (885 kilometers) from the Permian basin of West Texas and New Mexico to the US Gulf Coast.

The Trump administration last year imposed tariffs on imported steel and aluminum to shield US producers and jobs from overseas competition. It was one in a series of tariffs imposed by Trump since becoming president in 2017.

“This is an example of how harmful trade policies such as steel tariffs and quotas are hurting the US energy industry, economy, and potentially energy consumers,” said Natalia Sharova, a spokeswoman for the trade group American Petroleum Institute.

Two other new pipelines could also raise their prices if Plains’ surcharge sticks, three analysts said. They pointed to Kinder Morgan Inc’s Gulf Coast Express pipeline and an EPIC Midstream pipeline, which were constructed after the steel tariffs were levied.

“There’s certainly a risk of them passing on inflationary costs,” said Kendrick Rhea, an analyst at industry researcher East Daley Capital.

“This is an issue for the next go-around of pipelines,” added Matthew Blair, an analyst at Tudor, Pickering, Holt & Co.

Kinder Morgan declined to comment. EPIC did not immediately respond to requests for comment.

Plains Chief Executive Officer Willie Chiang last year told a congressional hearing that the tariffs on critical energy projects could have “significant unintended consequences that could undermine important progress toward realizing American energy independence, strengthening national security and improving the balance of trade.”

The US Commerce Department rejected Plains’ two initial requests for a waiver, and the company has filed a third request, said Brad Leone, a Plains spokesman. He did not say how much the surcharge would raise.

“It’s making it clear the steel sanctions are increasing costs,” Sandy Fielden, an analyst at financial services firm Morningstar, said of the company’s new fee. “The shipper’s going to have to pay, come what may.”

Plains disclosed spot tariff rates on the new pipeline from $4.75 to $5.60 per barrel, according to Friday’s regulatory filing, when the tariff went into effect.

It is one of three new pipelines entering service over the next few months and is expected to relieve a bottleneck that has weighed on regional oil prices for over a year.

Permian crude differentials rallied on market speculation that the Cactus II pipeline will begin service in August, traders said.

Pipeline operator EPIC Midstream Holding recently began filling a new 400,000 bpd crude pipeline from the Permian basin, and expects to begin making deliveries this quarter, President Brian Freed said in an interview with Reuters.


Saudi Arabia calls ‘urgent’ meeting of oil producers

Updated 02 April 2020

Saudi Arabia calls ‘urgent’ meeting of oil producers

  • Crude prices jump after move, which Kingdom says is part of efforts ‘to support global economy in these exceptional circumstances’

DUBAI: Saudi Arabia has called an urgent meeting of the Organization of Oil Exporting Countries and other oil exporters, to discuss restoring the “desired balance” in global energy markets.

The move — which prompted a big jump in the price of oil on global markets — is part of the Kingdom’s “constant efforts to support the global economy in these exceptional circumstances, and in appreciation of the request of the President of the USA, Donald Trump, and the request of friends in the USA,” according to a statement published by the official Saudi news agency.

Global oil prices reacted immediately. Brent crude, the Middle East benchmark, increased by 20 percent, taking it back above $30 a barrel.

The price of crude has been under pressure as a result of collapsing demand due to the coronavirus crisis, and Saudi Arabia’s determination to win market share from American and Russian producers.

During an OPEC meeting in Vienna last month, the Kingdom offered to implement further cuts in oil production but Russia refused to participate.

“Saudi Arabia would like to underscore its efforts during the past period to restore balance in the oil market, as it drew support for that from 22 counties of the OPEC+, but it was not possible to reach an agreement or get consensus,” according to the official Saudi statement.

Oil industry expert Daniel Yergin said: “This represents a recognition of how much the world has changed for oil in a single month as demand falls away so dramatically, and the impact of Donald Trump becoming personally engaged.”

The Saudi call for talks came after a hectic round of communications between the US, Russia and the Kingdom.

In a message posted on Twitter after the Saudi announcement, Trump wrote: “I just spoke to my friend Mohammed bin Salman, crown prince of Saudi Arabia, who spoke with President Putin and I expect and hope that they will be cutting back approximately 10m barrels, and maybe substantially more, which will be great for the oil and gas industry.”

However, officials in Riyadh downplayed any suggestion of a commitment to specific reductions in the levels of oil output. There is no indication yet of when the “urgent” meeting of OPEC and others might happen, nor what will be on the agenda, they said.

President Vladimir Putin denied that he had spoken to the crown prince about the price of oil. Novosti, the official Russian news agency, said there was no such conversation, but added that the president had discussed falling oil prices with other OPEC members and with the US.

“The Americans are worried because of their profitability for shale oil production,” said Putin. “This is also a difficult test for the American economy.”

This week, Saudi Arabia produced more oil in a single day than at any time in its history, with 12 million barrels flowing from pumps at Saudi Aramco, the world’s biggest oil company.