Energy executives say Trump’s plan to impose steep tariff could hit shale, LNG project costs

Energy executives have expressed concern that Donald Trump’s plan to impose steep steel and aluminium tariffs could increase the cost of major projects needed for rapidly rising U.S. shale oil and gas output by three to 10%.

They said higher construction costs could slow growth in production and exports of crude and natural gas from shale that has made the United States the world’s largest gas producer and second largest oil producer.

President Donald Trump’s proposal is emerging as a potential spoiler for new U.S. pipelines, drilling rigs, offshore platforms and refineries to handle coming oil and gas production. Companies including Exxon Mobil Corp , Kinder Morgan Inc and others have outlined tens of billions of dollars of new steel-intensive petrochemical and pipeline expansions in the United States.

The administration has not yet formally unveiled its plan. It is unclear whether exemptions would be available for certain sectors, or for steel from places such as Canada, the biggest foreign provider of the metal to the United States. U.S. trading partners have said they could counter tariffs with their own levies on U.S. exports.

Freeport LNG is in the process of building a fourth production line at the LNG plant in Texas. Steel tariffs would affect the economics of the plant but not deter the company from building it, Smith said on the sidelines of an industry gathering in Houston.

If the tariffs lead to a trade war with China, then Freeport LNG could suffer because China is among the long-term buyers for the gas, he said. U.S. export capacity was less than 2 million tonnes per annum (Mtpa) in 2015, and is expected to top 77 Mtpa by 2022, which would make it the world’s No. 2 exporter behind Australia.
Steel accounts for as much as 30 % of new drilling project costs. While higher costs would not halt new drilling in U.S. shale fields, “it could slow it down,” Jim Burkhard, vice president of oil research for consultancy IHS Markit, said in an interview.