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Plains All American will not be passing on its steel tariff fees to its Cactus II customers after all, after threatening to pass on the cost it will incur to the shippers that use the oil pipeline, according to S&P Global Platts.
The pipeline, which can move 670,000 barrels of oil per day out of the prolific Permian Basin, will now eat the cost of the steel tariff contrary to its earlier plans, after shippers railed against the notion of the planned 5-cent per barrel surcharge that was set to go into effect as of April 1 next year.
Plains All American estimated last year that the 25% tariff on steel would add $40 million to the project, according to Pipeline & Gas Journal.
ConocoPhillips and Encana Marketing had both lodged protests with the Federal Energy Regulatory Commission last week on the grounds that Plains could still receive a waiver for the fee, before it even goes into effect.
Plains abandoned its plan before the FERC could rule.
The Cactus II is looked up with great anticipation for the country who has made the oil industry a focal point over the last year. Pipeline capacity constraints have plagued the Permian, and have caused a deeper rift between Midland crude and West Texas Intermediate—similar to the situation that Canada has found itself in.
Crude oil output in the Permian basin has increased by leaps and bounds over the last couple of years, but pipeline projects take much longer to complete, creating an imbalance between crude oil production and pipeline capacity.
The move by Plains to abandon its attempt to recoup the costs of the steel tariffs may mean that the next two oil pipelines that are on track to move oil out of the Permian will find increased resistance if more shippers are emboldened by today’s outcome.
By Julianne Geiger for Oilprice.com
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Julianne Geiger is a veteran editor, writer and researcher for Oilprice.com, and a member of the Creative Professionals Networking Group.