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Trump administration tariffs rebounding
Pipeline fee proposed for Cactus II Permian basin line in response to steel increases opposed by producers Encana, ConocoPhillips Gary Park for Petroleum News
Encana and ConocoPhillips, two leading producers in Canada and the Permian basin, and both victims of nagging shortages of takeaway capacity, are mounting a fight against proposed pipeline fees stemming from the Trump administration’s steel tariffs.
In a filing with the U.S. Federal Energy Regulatory Commission they are urging the regulator to reject a surcharge on the Cactus II pipeline, one of three large new Permian lines scheduled to come on stream by mid-2020.
Their challenge is against the prospect of a 5 cent a barrel fee on the line, arguing that the system owner Plains All American has failed to demonstrate that the surcharge is “just and reasonable.”
Meanwhile, Plains has applied to the U.S. Department of Commerce for the third time to lift the 25% tariff it pays on steel imported from Greece.
Encana and ConocoPhillips say Plains should wait to learn whether it will be exempt from the tariff before getting the pipeline fee approved.
Tariffs added to construction costs Plains estimates the steel and aluminum tariffs imposed last year add US$40 million in construction costs to the US$1.1 billion budget estimate for Cactus II.
Plains ordered the steel before President Donald Trump introduced the tariffs but did not receive the first shipment until the summer of 2018 after the tariffs came into effect.
Plains Chief Executive Officer Willie Chiang said the tariffs were unfair because his company was unable to find an alternative domestic steel producer capable of meeting its specifications.
Plains’ first two waiver requests were turned down.
The proposed shipping fee would generate about US$33,500 a day for Plains if Cactus II operates at its capacity of 670,000 barrels per day.
James Coleman, an energy professor at Southern Methodist University, said the dispute is a clash of the Trump administration’s goals of global energy dominance and revising free trade, resulting in a transportation cost that producers don’t need.
The other two pipelines are Kinder Morgan’s 800,000 bpd Grey Oak system and Epic Midstream’s 900,000 bpd crude line.
Global commodities trader Trafigura, one of the biggest exporters of U.S. crude that routinely ships barrels overseas, has a long-term agreement to carry 300,000 bpd on Cactus II and has already started filling its share of the line.
Plains is proposing pipeline expansions in Canada, Montana and Wyoming with connections to new pipeline systems to deliver more Canadian crude to Houston and the Texas Gulf Coast.
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