US oil and gas pipeline developers, including the company behind the newly finished Dakota Access Pipeline, are pushing back on President Donald Trump's call for future pipelines to be built with domestic steel.
Energy Transfer Partners -- a major owner of the Dakota Access pipeline that will next month carry Bakken crude from North Dakota to Illinois -- said such a requirement would have a "significant adverse impact."
"The impacts of such a restriction are expected to severely delay project schedules, drive up costs, decrease availability and lower quality," ETP said in comments filed to the Commerce Department earlier this month.
Days after his inauguration, Trump signed an executive memorandum calling on the Commerce Department to develop a plan "under which all new pipelines, as well as retrofitted, repaired, or expanded pipelines" use US-sourced materials "to the maximum extent possible and to the extent permitted by law."
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The caveats left considerable wiggle room for any eventual policy, but Trump has nevertheless characterized the memo as a directive to pipeline companies to "buy American."
Trump's memo gave Commerce until late July to submit a plan to him.
SHORT DOMESTIC SUPPLY
Dakota Access developer ETP added in its comments that pipeline demand for steel would likely exceed domestic supply. The company said its recent purchase of pipe for three unnamed projects "in effect consumed the entire domestic capacity and potentially impacted other proposed pipeline projects and their ability to procure within the domestic market."
ETP said steel mills outside of North America are supplying "high-quality products with more stringent requirements on time at competitive prices and with few quality issues," while domestic mills at times lack the capacity to make pipe for specialty applications such as low temperatures, sour service and thicker wall requirements.
Of the 1.3 million mt of pipe ETP has bought in recent years, it said 19% of the steel was sourced from the US and 67% of the pipe was manufactured domestically. The shares vary because most pipe mills are not integrated, meaning they could source steel domestically or from any number of countries.
Another 35% of the steel and 12% of the pipe ETP used came from Canada or Mexico, with the remaining 46% of steel and 21% of pipe coming from outside North America, the company said.
Five oil and gas trade groups -- including the American Gas Association, American Petroleum Institute, Association of Oil Pipe Lines and Interstate Natural Gas Association of America -- said in a joint comment to Commerce that intervening in the market with a domestic sourcing requirement could drive up steel prices and create unintended consequences like eliminating jobs and delaying or reducing investments.
"Domestic sourcing requirements do not currently exist for any infrastructure projects funded with private capital," the trade groups said.
They also raised concerns about sourcing steel to make urgent pipeline repairs. If an operator cannot find a specific pipe quickly, it might have to shut a pipeline system or reduce its pressure, curtailing supply.
The trade groups urged Commerce to phase in any new requirement and exempt projects already under way.
"If these hurdles are not overcome, government action to increase domestic steel and pipe production could have the unintended result of reducing or significantly delaying new pipeline projects, limiting US pipeline job growth, and hurting American consumers," they said.
LNG EXPORTS AT STAKE
, which is building a $4 billion export terminal near Lake Charles, Louisiana, said a domestic steel requirement for pipelines could limit the US' "new era of energy exports."
"Not only might the lack of certainty over the application of the policy slow foreign direct investment in the US energy sector, but the potential for higher energy prices due to increased oil or natural gas transportation costs could dissuade international energy buyers from sourcing their oil or gas from the United States," said the company, which is a subsidiary of Australia's Liquefied Natural Gas Ltd.
National Fuel Gas Supply Corp. expects a "Buy American" requirement to create very aggressive competition for raw materials and semi-finished products. It said it would be concerned about the largest companies placing huge inventory orders on speculation of increased demand and impending shortages, which would further distort prices.
Pipeline developers would have to pass those higher costs onto customers, National Fuel said.
EQM Midstream Partners, which owns natural gas pipelines in the Appalachian Basin, urged Commerce to exempt from a US steel requirement any pipeline that companies already have in stock and any projects that have shipper commitments or have started the regulatory process.
EQM also wants to see an exception for companies when they cannot source steel domestically, especially when they need it on an expedited basis for replacement projects driven by safety concerns.
"Any requirement that increases the cost of pipe and equipment might affect project viability and the operator's future ability to expand or extend existing pipeline systems," EQM said.
Utility NextEra Energy said it supports the Trump administration's goal of using 100% domestic steel in US pipelines but cautioned that an "immediate and inflexible" requirement would impair US energy infrastructure development, delay critical pipelines, sharply increase pipeline costs and force developers to abandon proposed projects.
The Canadian Steel Producers Association said it was alarmed by the administration's proposal to potentially restrict private companies from making deals contrary to World Trade Organization and NAFTA obligations.
The group said trade flows in both directions across the US-Canadian border to the benefit of both countries. Half of US steel exports headed north in 2016, accounting for 30% of Canada's domestic market. Canadian steel producers also sources significant volumes of raw materials from the US, including $1.5 billion in iron ore, bituminous coal, steel scrap, zinc and other metals bought by Canadian companies last year.
--Meghan Gordon, firstname.lastname@example.org
--Edited by Valarie Jackson, email@example.com