Texas exploration and production companies and Chinese refiners shared a collective sigh of relief following a recent decision to remove U.S. crude oil from the list of goods entangled in the ongoing U.S.-China trade war.
Nevertheless, though U.S. crude oil appears safe from tariffs for now, China reportedly is still considering a 25 percent levy on imports of U.S. liquefied natural gas after officially imposing a 25 percent tariff on U.S. propane, butane, naphtha, jet fuel and coal imports.
The escalating trade disputes between the United States and China are putting the success of the American oil and gas sector at risk, and they stand to deter investment in long-term energy projects, amongst other negative implications, if tensions continue.
Domestic oil and natural gas production continues to increase, but potential shifts in the global market as a result of international trade disputes could stall U.S. output. The Texas Independent Producers and Royalty Owners Association projects crude oil output from Texas will reach nearly 1.5 billion barrels of oil by the end of 2018, an increase of nearly 200 million barrels compared to the total output last year.
The Permian Basin alone is expected to account for half of all new global oil production over the next five years. However, West Texas lacks sufficient infrastructure to move so much oil to market, and the Trump Administration's current tariffs on steel and aluminum threaten to derail plans to build more infrastructure.
By 2019, the U.S. is set to become the largest liquefied natural gas exporter in the world. Already in 2017 U.S. liquefied natural gas exports were valued at more than $3 billion. As well, crude oil export is increasing, reaching a record 2 million barrels per day in May of this year.
However, recent retaliatory rhetoric regarding potential tariffs on liquefied natural gas and crude oil exports to China could further exasperate negative implications of the ongoing trade war for our country and partners abroad.
China is the largest importer of oil and the second-largest importer of liquefied natural gas in the world. While trade negotiations between U.S. and Chinese officials continue, as of Aug. 15, Reuters reported that not a single tanker has loaded crude oil from the United States bound for China since the start of August, compared with an estimated 300,000 barrels in the months of June and July. China has also abridged its imports of U.S. liquefied natural gas in recent months.
With liquefied natural gas demand expected to rise significantly over the next 12 to 18 months, the possibility of China implementing tariffs on U.S. natural gas exports has also caused concern about the construction of several facilities in the U.S. for liquefied natural gas exports.
Meanwhile, the fall-out of utilizing tariffs to reduce trade deficits and the negative consequences for the oil and natural gas industry continue to unfold. When the initial steel and aluminium tariff review process began last year, U.S. operators started to see an increase in the cost of domestic steel.
Once the tariffs were officially adopted in March, prices for oil country tubular goods, a term that includes various pipes and tubes used in oil and gas production, soared by nearly 30 percent in some cases, while expenditures for line pipe, a term describing steel pipes used in pipelines, jumped by 10 to 20 percent.
These tariffs on imported steel and aluminum have been described by many as, effectively, a tax against U.S.-based producers, large and small, adding significant cost to drilling oil and gas wells and tens of millions of dollars to some critical infrastructure projects.
Eliminating overly burdensome regulations and supporting pro-American energy policies has allowed the U.S. oil and natural gas industry to increase production, exports, tax revenue and employment, while decreasing our country's dependence on foreign oil. Thanks in part to the improved regulatory climate, Texas — the nation's top oil and natural gas producer — has witnessed a revival of exploration and production activity during the past two years.
This has benefited our local and state economies. In addition to directly employing more than 330,000 workers in the state of Texas and generating billions of dollars in tax revenue annually, the Texas oil and gas industry last year purchased goods and services amounting to $121 billion, mostly from within the Lone Star State. This helps to illustrate how important the oil and natural gas industry is to the broader economy and what's at risk.
While President Trump's commitment to fulfill all campaign promises is admirable, tariffs and trade disputes conflict with his energy dominance agenda, which could have a lasting impact on the U.S. oil and gas industry.
Ed Longanecker is president of the Texas Independent Producers & Royalty Owners Association. He wrote this column for The Dallas Morning News.