Pipeline Sector Wary of Commerce Dept. Investigations on Steel, Pipe Imports

The pipeline sector is urging the Trump administration to use caution as it considers imposing tariffs on steel imports and imports of large-diameter welded pipe from six countries. Tariffs on imports could result in pipeline project delays, cancelations, higher costs, and harm U.S. workers in the pipeline construction business, according to the Association of Oil Pipe Lines (AOPL) and the Interstate Natural Gas Association of America (INGAA).

The two trade groups and the American Petroleum Institute (API) commented on recent announcements from Commerce Secretary Wilbur Ross in several different proceedings that could affect the oil and natural gas industry. Besides a February 16 recommendation that President Donald Trump impose tariffs on imports of steel and aluminum based on national security concerns, Ross announced investigations into whether imports of large-diameter welded pipe are being dumped in the U.S. or if foreign pipe producers are receiving unfair subsidies.

The investigations on welded pipe were started under antidumping duty (AD) and countervailing duty (CVD) procedures at the request American pipe manufacturers. The pipe imports from Canada, Greece, China, India, Korea, and Turkey are being investigated.

Under AD investigations, dumping occurs when a foreign country sells a product in the U.S. at less than its fair value, and in CVD investigations, a subsidy is financial assistance from a foreign government that benefits the production of goods from foreign companies and is limited to specific enterprises or industries, Commerce said in a fact sheet on the investigations.

The U.S. International Trade Commission (ITC) is scheduled to make preliminary injury determinations by March 5. If the ITC determinations are negative, the Commerce investigations will be terminated. If the ITC determines that imports injure or threaten material injury to domestic manufacturers, the investigations would continue, and Commerce is scheduled to reach conclusions by April 17 on the CVD investigation and July 2 on the AD investigation.

If the Commerce Department makes affirmative findings in its investigations, and if the ITC determines that dumped and/or unfairly subsidized imports of large-diameter welded pipe from any of the countries are causing injury to the U.S. industry, the Commerce Department will impose duties on those imports in the amount of dumping and/or unfair subsidization found to exist.

Using 2016 data, the Commerce Department said imports of large-diameter welded pipe from Korea, Turkey and Greece was valued at $150.3 million, $116.1 million, and $70 million, respectively. Imports from Canada, India, and China were valued at $66 million, $26 million, and $13 million, respectively.

The product covered by the investigations is welded carbon and alloy steel pipe of more than 16 inches in nominal outside diameter, regardless of pipe wall thickness, length of pipe, finish, grade or stenciling, Commerce said. Such welded pipe can be used to transport oil, gas, slurry, steam or other liquids or gases.

“When initiating a trade investigation, the Department of Commerce begins an open and transparent process that allows American companies and workers to gain relief from the market-distorting effects of injurious dumping and subsidization of imports,” Ross said in an announcement.

INGAA is reviewing the specifics of the investigations stemming from a petition by U.S. pipe manufacturers, which can create uncertainty for companies considering pipe purchases, said Catherine Landry, INGAA spokeswoman. “Natural gas transmission projects have long lead times, and line pipe is not something bought off the shelf,” she said.

The pipe used for pipeline construction is a specialized niche product that must meet stringent material quality standards to ensure safety, Landry noted.

“While we do not want to speculate on the outcome of this proceeding, we are concerned any government action that affects the availability of this very specialized product could have the unintended result of delaying or even reducing the number of new pipeline projects,” she said.

That would be unfortunate, particularly since consulting firm ICF has estimated that about 75% of current pipeline construction expenditures, including material purchases, end up in the pockets of American workers and business owners, regardless of the origin of the pipe, Landry said.

AOPL made a similar point in its statement on Commerce actions and the possibility of tariffs on steel imports. The group said the Trump administration should use caution in its investigation of steel imports under Section 232 of the Trade Expansion Act.

Commerce said it recommended to President Trump that tariffs be imposed on steel and aluminum imports based on a finding that the level and circumstances of imports of those products threaten to impair national security as defined by Section 232 of the Trade Expansion Act. Trump is required to decide on the steel recommendations by April 11 and on the aluminum recommendations by April 19.

“I look forward to his decision on any potential course of action,” Ross said in a February 16 statement. Trump could take a range of actions, or no action, based on the analysis and recommendations provided by the agency, including modifications to the suggested tariff levels for the products.

“After President Trump has done so much to reinvigorate the economy and provide Americans tax relief, we would hate to see American workers lose jobs from steel trade actions that delay or cancel pipeline construction projects,” said Andy Black, president and CEO of AOPL.

AOPL said the ICF study indicated that trade or material purchasing restrictions that raised pipe costs 25% would translate into a $76 million cost increase for a 280-mile pipeline project. Tariffs on steel or welded pipe could delay or cancel new projects and end up hurting American workers through less pipeline construction, AOPL said.

Addressing the steel market, AOPL said U.S. firms do not make enough pipeline-grade steel that must meet high quality specifications to protect against cracking or flaws that are not required for other steel products. Pipeline-grade steel is such a niche market -– at 3% of the total steel market -– that U.S. steel producers largely exited the business due to lower margins and chose to focus on higher volume products such as steel for cars and appliances, AOPL said.

INGAA and AOPL emphasized that the steel tariffs suggested by Commerce are only recommendations, and that the final decision rests with Trump. If he adopts the recommendations, government action to bolster domestic pipeline and pipe production sectors could have the unintended result of reducing new pipeline projects and limiting U.S. pipeline job growth, AOPL said.

API had similar comments, asserting that tariffs on steel and aluminum imports does not make sense for the U.S. economy. The recommendations from Commerce are inconsistent with Trump administration efforts to bolster the economy and strengthen U.S. infrastructure, said Jack Gerard, president and CEO of API.

The oil and gas industry depend on steel imports for a majority of its operations, including onshore and offshore production facilities, LNG terminals, refineries, and petrochemical plants. “These tariffs would undoubtedly raise costs for U.S. businesses that rely heavily on steel and aluminum for the majority of their products – and ultimately consumers,” Gerard said.

By Tom Tiernan TTiernan@fosterreport.com


This article appears as published in The Foster Report No. 3187, issued February 23, 2018

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