Trump’s ‘America-First’ Pipeline Plan Draws Ire of American Oil

by Jennifer A Dlouhy

Donald Trump’s allies in the oil industry are warning the president that his bid to boost US steelmakers could back re against their efforts to achieve his goal of “American energy dominance”.

The intense lobbying effort comes as the Commerce Department blew a Sunday (July 23) deadline to give the president a plan to require oil and gas (O&G) pipelines use American-made steel, an idea Trump embraced in the initial days of his presidency. While the US has imposed “Buy American” rules on government purchases for decades, it would be unprecedented to force those obligations on privately funded, commercial projects.

The blueprint from Commerce Secretary Wilbur Ross would set the stage for further protests from the oil industry, the US Chamber of Commerce and developers, including The Williams Cos Inc and Energy Transfer Partners.

“A core feature of the US free enterprise system” is that “private businesses should be free to make purchasing decisions on their own”, the Chamber of Commerce, the biggest-spending business lobby in Washington, said in its comments to Ross.

The effort illustrates how Trump’s “America-first” agenda pits his allies against one another and underscores the challenges of fulfilling the president’s protectionist stance. As with Trump’s promises to restrict immigration from Muslim-majority nations, rework former President Barack Obama’s healthcare law and overhaul the tax code, the reality of implementing this idea has been more difficult than the president initially posited.

Trump kicked off the pipeline-focused effort during his fourth day in office, issuing a presidential memorandum compelling the Commerce Department to determine how to require American material in all, retrofitted, repaired or expanded US pipelines “to the extent permitted by law.” Under Trump’s directive, iron and steel only qualifies as American-made if it is fully produced in the US, from its initial melting to the later application of coatings. The idea originated when union leaders suggested it during a meeting with the president; Trump ordered an aide to make it happen, sending advisors scrambling to draw up the directive before it was signed the next day.

Separately, the Trump administration is investigating whether foreign steel threatens US national security — a probe that could lead to tariffs or quotas on those imports.

While pipeline developers have praised Trump’s approval of projects that stalled under Obama, including TransCanada Corp’s Keystonnese XL and Energy Transfer’s Dakota Access, they warn America-made requirements could undercut that progress. More than three quarters of pipe used in O&G projects begins as imported steel, according to one industry study.

“Fewer new pipeline projects would run counter to the Trump administration’s goal of expanding US energy production and infrastructure to support the economy, job growth and national security,” said a coalition of oil industry trade groups, including the American Petroleum Institute and the American Gas Association. Relying solely on US-produced pipeline-quality steel and components “could lead to long construction delays and higher costs, potentially cancelling planned pipeline projects or blocking new pipeline projects”.

The blueprint from ross would set the stage for further protests from the oil industry, the uS Chamber of Commerce and developers.
(Pic:Bloomberg)

Energy Transfer said that when it purchased pipe for three US projects simultaneously, it effectively consumed the entire domestic capacity.

It’s not clear how the US government could enforce the mandate, though multiple federal agencies can play a role permitting pipeline projects and scrutinising their operations.

Steel Dynamics Inc, one of the largest domestic steel producers, recommended the Trump administration impose an American-made requirement through the Federal Energy Regulatory Commission, which reviews proposals to build interstate pipelines to ensure they comply with safety, security and environmental standards.

“Pipeline applications not using domestic pipe from domestic steel should be rejected unless an applicant proves that there is no available domestic pipe made from domestic steel that meets the pipeline’s specifications,” Steel Dynamics told the Commerce Department in written comments.

Many steel producers, including ArcelorMittal USA LLC, Nucor Corp, and US Steel Corp, said Trump’s plans could help revive the industry, which is struggling to compete amid a worldwide glut of the product.

“At a time when the domestic steel industry faces unprecedented challenges resulting from massive global overcapacity and surges of unfairly traded imports, domestic preference provisions are even more critical to stimulating domestic production and employment throughout the steelmaking supply chain,” Nucor said in comments to Commerce.

But pipeline builders argue many steel mills have elected not to invest in producing a specialised pipe that meets industry standards for integrity and strength that make it usable in O&G pipelines. Fewer still produce large pipe with very thick walls — the kind typically used for long-distance projects. About 77% of steel used in US pipelines today begins abroad — with roughly half of the pipe foreign sourced and the remaining half made in the US, using imported steel, according to a study from ICF International Inc cited by the American Petroleum Institute (API).

Steve Crookshank, a senior economist at API, said it could take two to 10 years for the US to ramp up its capacity to satisfy the O&G industry’s needs and even then, “there’s no guarantee that domestic manufacturers are going to commit the capital” to serving a cyclical, niche market.

Buy America

The Alliance for American Manufacturing told the Trump administration it shouldn’t be swayed by arguments there isn’t enough capacity to churn out the steel pipe the O&G industry requires. Supporters point to Philadelphia-based Sunoco Logistics’ plans to fully source its 350mile Mariner East 2 pipeline with 75,000 tonnes of domestically produced steel. That project is evidence that US companies can meet the oil industry’s needs, the manufacturing alliance said.

“Buy America” preferences are now set for government-funded projects, such as highways and passenger-rail systems. But trade lawyers say putting similar requirements on commercial endeavors would be difficult — and might be illegal.

“Current law does not authorise the US government to impose domestic-origin requirements on privately owned, operated and funded pipelines,” said Scott Lincicome, a trade attorney with White & Case LLP. It also is inconsistent with the rules of the World Trade Organisation — the same forum the US has used to object to other countries’ local-content requirements.

“The US is one of the top complainants when it comes to local-content requirements around the world, so it would be quite a reversal of policy for the US itself to institute such measures for pipelines,” Lincicome said. — Bloomberg