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One of the hottest sectors in the U.S. today is energy. The shale revolution brought to you by hydraulic fracturing, or fracking, has produced a historic boom period in the oil and gas industry. Thousands of jobs are being created every month, regulations are coming down, the U.S. is not beholden to the Paris Accord any longer, and domestic output has topped 10 million barrels per day (bpd).
These impressive conditions have enabled the U.S. to become energy independent, surpassing Saudi Arabia. It has also brought the Organization of the Petroleum Exporting Countries (OPEC) to its knees.
A key campaign objective for President Donald Trump was to facilitate the dominance of America’s oil sector. But he is inadvertently placing a significant roadblock on the industry’s path to toppling Russia from the black gold throne: tariffs.
When President Trump announced that he would institute tariffs on steel and aluminum imports, there was a collective sigh of relief emanating from the Middle East.
President Trump did face a lot of pushback from Republicans, oil executives, conservative activists, and free-market think tanks. But he also received a ton of adulation from several groups like the steel industry, unions, Democrats, and the 12-nation cartel.
Hindering America’s Energy Renaissance
Today, the U.S. imports four times as much steel as it exports. This has allowed companies that manufacture goods with steel to save a lot of money, resulting in job creation and savings passed down to the consumer. It has been a win-win situation for the country.
An important factor in the resuscitation of U.S. energy is cheap steel.
The domestic sector depends on imported steel for refineries, drilling equipment, pipelines, liquefied natural gas (LNG) terminals, and much more. With Trump’s 25% levy on the element, it is going to become a lot more expensive to complete energy projects, and the industry is already sounding the alarm.
Soon after the White House announcement, a representative of the Interstate Natural Gas Association of America noted that the tariff could create serious issues since the types of pipes and steel used in their pipelines are difficult to source domestically.
The Center for Liquified Natural Gas, a trade organization, stated that LNG export initiatives utilize specific steel components that are not manufactured in the U.S.
Andy Black, CEO of the Association of Oil Pipe Lines (AOPL), warned that constructing arteries to carry petroleum would inevitably rise because specialized foreign steel is needed. His group released a study last year that found a 25% jump in pipeline costs would boost the budget for the average project by $76 million.
It is estimated that oil producers need the international price for a barrel of crude to be $45 to $50 to break even and turn a profit – some reports peg it at as low as $35. This could be affected if operating costs increase from import taxes.
It’s evident that steel may be the key beneficiary of tariffs, but other sectors are already feeling the pinch.
Will a Trade War Hurt U.S. Energy?
In a trade war, countries retaliate. This was witnessed following former President George W. Bush’s steel tariffs. This was seen after former President Barack Obama’s tire levies. This is currently unfolding in the wake of President Trump’s myriad of mercantilist approaches to international trade.
The big fear for oil-producing states is that foreign jurisdictions will react negatively.
“There’s a way to do it that focuses on the problem — the real problem — which is China, and do it in a way that we align ourselves with our allies, not alienate them, and I worry that this approach right now could have the opposite effect.”
He is concerned that nations could punish his state by imposing tariffs on energy products, as well as other crucial exports like seafood.
But the sky may not be falling yet.
The International Energy Agency (IEA) forecasts that the U.S. will account for 80% of global oil growth over the next three to five years. Fatih Birol, IEA executive director, does believe it is too premature to determine if the tariffs will impact American oil. She does say, however, that output is so immense the industry will adapt to the changes and crude exports will remain strong.
So, U.S. energy won’t be harmed by the bullets in a trade war? Not quite.
When prices crashed in 2014, investments in new infrastructure were quite minimal. The IEA wrote in a report that these businesses need to begin spending again to prevent crude shortages after 2020. If the costs are too much to bear, will the industry invest in new infrastructure? Only time will tell.
Make Oil Great Again?
It is a great time to be in Texas Tea. West Texas Intermediate (WTI) futures are stabilized at above $60 a barrel, shares of oil companies are climbing, and the U.S. does not need to bow down to OPEC. There are multiple contributing factors to this domestic boom, and one of them is foreign steel. President Trump’s desire for the U.S. to become the world’s largest crude producer is coming to fruition. But unnecessarily placing a costly and substantial hurdle for energy to overcome risks undoing its success.
Do you think steel tariffs will hurt U.S. energy firms? Let us know in the comments section!Feel free to comment below. And remember to check out the web’s best conservative news aggregator Whatfinger.com