US shale shippers to foot bill for Trump steel tariffs

US-China trade friction has led to the imposition of tariiffs on goods, with steel at the heart of the conflict. Now, rising costs are being passed on to other US industries, including fuel. (Shutterstock)
Updated 03 August 2019

US shale shippers to foot bill for Trump steel tariffs

  • Pipeline operators begin to introduce fees to pay for cost of administration’s China trade war

BEIJING: Plains All American Pipeline said it will tack on a fee for users of a new oil pipeline to pay for the cost of the Trump administration’s imported steel tariffs, becoming the first US operator to do so.

In addition to steel levies announced last year, President Donald Trump said on Thursday he plans to expand US tariffs to $300 billion of Chinese imports in a trade dispute that has increased costs for US consumers on everything from steel to electronics.

Houston-based Plains will begin charging shippers a 5 cents per barrel fee on its 670,000 barrel-per-day (bpd) Cactus II pipeline next April to offset higher construction costs from “governmental regulation and tariffs,” according to a filing with the Federal Energy Regulatory Commission.

Plains last year estimated the 25 percent steel tariff would add $40 million to its costs for the $1.1 billion pipeline, which runs 550 miles (885 kilometers) from the Permian basin of West Texas and New Mexico to the US Gulf Coast.

The Trump administration last year imposed tariffs on imported steel and aluminum to shield US producers and jobs from overseas competition. It was one in a series of tariffs imposed by Trump since becoming president in 2017.

“This is an example of how harmful trade policies such as steel tariffs and quotas are hurting the US energy industry, economy, and potentially energy consumers,” said Natalia Sharova, a spokeswoman for the trade group American Petroleum Institute.

Two other new pipelines could also raise their prices if Plains’ surcharge sticks, three analysts said. They pointed to Kinder Morgan Inc’s Gulf Coast Express pipeline and an EPIC Midstream pipeline, which were constructed after the steel tariffs were levied.

“There’s certainly a risk of them passing on inflationary costs,” said Kendrick Rhea, an analyst at industry researcher East Daley Capital.

“This is an issue for the next go-around of pipelines,” added Matthew Blair, an analyst at Tudor, Pickering, Holt & Co.

Kinder Morgan declined to comment. EPIC did not immediately respond to requests for comment.

Plains Chief Executive Officer Willie Chiang last year told a congressional hearing that the tariffs on critical energy projects could have “significant unintended consequences that could undermine important progress toward realizing American energy independence, strengthening national security and improving the balance of trade.”

The US Commerce Department rejected Plains’ two initial requests for a waiver, and the company has filed a third request, said Brad Leone, a Plains spokesman. He did not say how much the surcharge would raise.

“It’s making it clear the steel sanctions are increasing costs,” Sandy Fielden, an analyst at financial services firm Morningstar, said of the company’s new fee. “The shipper’s going to have to pay, come what may.”

Plains disclosed spot tariff rates on the new pipeline from $4.75 to $5.60 per barrel, according to Friday’s regulatory filing, when the tariff went into effect.

It is one of three new pipelines entering service over the next few months and is expected to relieve a bottleneck that has weighed on regional oil prices for over a year.

Permian crude differentials rallied on market speculation that the Cactus II pipeline will begin service in August, traders said.

Pipeline operator EPIC Midstream Holding recently began filling a new 400,000 bpd crude pipeline from the Permian basin, and expects to begin making deliveries this quarter, President Brian Freed said in an interview with Reuters.


Saudi Arabia starts selling triple-tranche dollar bonds

Updated 21 January 2020

Saudi Arabia starts selling triple-tranche dollar bonds

  • The kingdom is offering initial price guidance of around 110 basis points (bps) over US Treasuries for the seven-year paper

DUBAI: The government of Saudi Arabia started marketing on Tuesday US dollar denominated bonds split into tranches of seven, 12 and 35 years, a document showed.

The kingdom is offering initial price guidance of around 110 basis points (bps) over US Treasuries for the seven-year paper, 135 bps over the benchmark for the 12-year tranche, and 180 bps over for the 35-year.

Citigroup, Morgan Stanley and Standard Chartered are joint global coordinators and lead managers, and BNP Paribas, HSBC, JPMorgan and NCB Capital have been hired as passive lead managers.