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Alliance submits steel tariffs comments to Department of Commerce

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World Pipelines,

As NAFTA trade negotiations continue, the Texas Alliance of Energy Producers (TAEP) consistently stands with producers that need reasonable steel costs. TAEP emphasised this in its recent letter.

These comments are filed on behalf of TAEP. TAEP is an oil and gas trade association representing 2600 members involved in oil and gas exploration and production, oilfield services, and drilling for crude oil and natural gas, along with other affiliated industries. TAEP represents primarily smaller independent oil and gas companies; the combined volume of production by these companies as a share of total production is significant, however. Independent producers drill about 90% of American oil and gas wells, produce 54% of American oil and produce 85% of American natural gas.

Steel is a primary input in the development of oil and gas production in Texas in terms of drilling, ongoing production, and delivery to market. Depending on location, intra-company economics, and other factors, steel typically accounts for 10 - 20% of the overall oilfield cost structure. As such, the imposition of tariffs and the potential imposition of quotas by agreement or fiat and the resulting steel cost increases is of great concern to TAEP, its member companies, and Texas and US domestic oil and gas producers.

Clearly the tariffs themselves will lead to cost increases for oilfield steel, Oil Country Tubular Goods (OCTG) and line pipe (LP) in particular. Beyond that, shortages of oilfield steel products will develop – and are already developing – further driving up costs to oil and gas producers. A sizeable number of products are simply not available domestically, OCTG in particular, and costs have already risen significantly and will likely continue to do so.

To alleviate or mitigate the negative impacts to Texas and US domestic crude oil and natural gas production, the Texas Alliance of Energy Producers respectfully requests the following:

  • Country exemptions for countries supplying oilfield steel goods to the US domestic oil and gas industry, most notably Canada, Mexico, the European Union, South Korea, Argentina, Brazil, and Japan.
  • Product exemptions that are granted across the entire industry, rather than exemptions that must be requested by each individual company for each individual steel product.
  • That no import quotas are imposed on oilfield steel goods, either by voluntary agreement (as in the case of South Korea, one of the largest suppliers of oilfield steel goods to the US oil and gas industry) or by proclamation; the imposition of quotas will very likely raise the cost of oilfield steel products to American domestic producers to a much greater extent than tariffs.
  • That any information provided by individual oil and gas companies in the product exclusion process is viewed as Confidential Business Information and carefully guarded thusly.
  • That any tariffs paid in advance of country or product exclusions are rebated to oil and gas producing firms should those exclusions subsequently be granted.

The increased cost of oilfield steel goods that will necessarily occur as a result of the imposition of tariffs and/or quotas will negatively impact Texas and US oil and gas firms directly. As revenue is shifted from profit to expense as a result of these higher costs, the effective revenue received from oil and gas production will be lowered. Industry jobs will either be lost or not created in the future as a result of that shift. Activity levels will be diminished in commensurate fashion and American consuming households and business will be denied the full benefit of US energy production.

Further, smaller independent oil and gas producing companies will find it very difficult to absorb these additional costs. They also will very likely not possess the resources to go through the arduous process of applying for product exemptions at the individual company level. They will therefore be subject to the full weight of cost increases as a result of the imposition of tariffs and/or quotas. TAEP asks that the BIS and Department of Commerce in this comment process undertake the full understanding of the effects of unavoidable cost increases on the US domestic oil and gas producing industry.

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