The oil and gas industry hoped they would be spared from Donald Trump’s trade war, but the Permian basin was just hit with some bad news.
The Permian basin has run up against a bottleneck for pipeline capacity. Gushing oil from West Texas will surpass the available space on the region’s pipelines this year, which could force output growth to suddenly plateau after expanding at a blistering pace over the past few years. New pipelines are still a year away.
One of the crucial pipeline projects slated to come online at some point next year is the Plains All American Pipeline LP’s Cactus II project, which will ferry 585,000 bpd crude oil from the Permian basin to the Gulf Coast at Corpus Christi.
Plains All American sent a request to the Trump administration, seeking an exemption from the 25 percent tariffs on imported steel. An industry estimate finds that about three-quarters of all the steel used in oil and gas pipelines comes from abroad, often because projects use a special type of steel that is hard to find domestically.
The Trump administration just shot down the request from Plains All American, the first rejection for a major oil and gas project. The denial could significantly raise the cost of the $1.1 billion Cactus II pipeline. The Commerce Department justified its rejection by arguing that there was sufficient supply of steel found within the United States.
A long line of other companies are also seeking exemptions, and the Commerce Department has to go through one by one. The agency has granted 267 exemptions and denied another 452, according to Reuters. There have been over 25,000 requests. Royal Dutch Shell and Chevron recently received an exemption on steel used in specific types of equipment for their offshore drilling projects in the Gulf of Mexico.
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