Houston — The planned signing of a free trade agreement among the US, Canada and Mexico is expected to ease tensions among the three countries, but a proposal reportedly under consideration by US trade officials regarding US steel imports might spell even more trouble for US oil and gas producers, an official of a Texas industry trade group said this week.
Officials of the three countries are expected to meet in Buenos Aires at the end of the month to sign the USMCA, the agreement that replaces the North American Free Trade Agreement. But the problems for the US energy industry arising from tariffs on steel and aluminum imports, which President Trump imposed earlier this year, remain and could grow worse, Ed Longanecker, president of the Texas Independent Producers and Royalty Owners said in a statement Tuesday.
The Office of the US Trade Representative (USTR) is considering replacing the current 25% tariff on imports of steel from Mexico and Canada "with restrictive import quotas under Section 232 of the Trade Expansion Act of 1962," Longanecker said
"A tax on material used in exploration and production and critical infrastructure projects was imposed on the US oil and natural gas industry with previously adopted steel and aluminum tariffs with Mexico and Canada," he said.
"If import quotas were to be imposed, the consequences could be far worse if these products are made unavailable."
A constraint in the supply of steel resulting from the imposition of quotas would be felt most acutely in Texas, and in particular in the Permian Basin, which is driving a large percentage of the growth in US oil and gas production. "Texas currently contributes over 40% of US crude oil production and approximately 30% of US natural gas," Longanecker said.
Texas natural gas production increased to 6.1 Tcf of gas produced through September, a slight increase compared with the same period of last year, while Texas crude oil production totaled an estimated 1.1 billion barrels through September, an increase of 189 million barrels compared to the same time frame last year.
TARIFFS VS. QUOTAS
Jeff Eshelman, a spokesman for the Independent Petroleum Association of America, agreed that imposing quotas on imported steel would be much more damaging to the independent exploration and production industry than applying tariffs to the materials.
While tariffs increase the price of imported products, quotas limit the volumes of goods that countries can export to the US, he said in an interview with Platts on Wednesday.
According to IPAA, the E&P industry relies heavily on imports for two classifications of steel products: oil country tubular goods (OCTG) and line pipe (LP). These classes of steel products typically account for 10% to 20% of well development costs.
"These steel products include OCTG such as carbon-steel casing and alloyed steel tubing that build and complete the wellbore and LP that is both carbon-steel and alloyed steel used to move oil and natural gas on the surface of the well site and for transport off the well site to pipelines or storage," a recent IPAA report says.
"Over the past few years, domestic steel products have captured more than 50% of the OCTG and LP market. However, historically, imports have provided from 35% to 55% of OCTG, and many of the alloyed steel products are not produced in the United States and must be imported," the report says.