Permian Pipeline Project Denied Tariff Exemption

he U.S. Administration has rejected the request of Plains All American Pipeline to exempt its US$1.1-billion Cactus II pipeline in the Permian from the 25-percent tariff on steel imports in what is the first such rejection to a major project.

According to a Commerce Department decision, carried by Reuters, the request has been denied because there are suitable products available from U.S. steel producers.

The Cactus II pipeline, with an initial capacity of 585,000 bpd extending from the Permian to the Corpus Christi/Ingleside area and costing a total of US$1.1 billion, is one of the major pipelines planned to secure an outlet for Permian oil to the markets and alleviate takeaway capacity constraints. The pipeline is targeted to be operational in the third quarter of 2019.

Plains All American Pipeline had ordered material for part of the pipeline from a producer in Greece in December last year, before U.S. President Donald Trump slapped in March tariffs on steel and aluminum imports to protect U.S. production and jobs.

In its application for exemption, Plains All American Pipeline cited facts that only three steel mills in the world could manufacture the material it needed, and none of them were in the United States.

Plains said it would proceed with the project, but did not say how much the rejection for exemption could raise the cost of the project. It criticized the exemption review process as “flawed” and inefficient.

“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,” the company said in a statement, carried by The Wall Street Journal.

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The U.S. Commerce Department has yet to rule on similar requests for exemption by Kinder Morgan, a pipeline unit of Shell, and Williams Cos, among others.

Pipeline companies expressed disappointment with the steel tariffs as soon as President Trump approved them, with the Association of Oil Pipe Lines (AOPL) urging the Administration to at least allow exemptions.

The Texas Pipeline Association said in March, commenting on the tariffs: “A steel tariff will make it difficult for the oil and gas industry to obtain pipeline steel in a reasonable timeframe and at a competitive price, thus threatening America’s energy dominance while putting upward pressure on energy prices for consumers.”

By Tsvetana Paraskova for Oilprice.com

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