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Expect production cuts without tariff relief, U.S. energy group says

Commerce Secretary Wilbur Ross said in a weekend editorial the domestic metals industry was robust because of federal trade decisions.

By Daniel J. Graeber
Expect production cuts without tariff relief, U.S. energy group says
Without relief from steel tariffs, a Texas energy trade group said oil production trends could eventually slow down. File Photo by Stephen Shaver/UPI | License Photo

July 19 (UPI) -- Steel tariffs are creating headwinds for the U.S. energy sector, impeding with the government's own objectives and stifling production, industry leaders said.

"The Trump Administration has supported the development of robust domestic energy production. Energy infrastructure projects are complex, expensive, and depend on global supply chains," Josh Zive, a senior principal at Bracewell LLP, told UPI. "The Section 232 steel and aluminum tariffs are creating uncertainty and increasing costs for the development and construction of these energy infrastructure projects across the country."

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Bracewell was responding to questions sent by UPI to media representatives at the American Institute for International Steel.

Section 232 uses national defense concerns as justification to impose import duties on aluminum and steel. Representatives from the U.S. energy sector have called for relief from steel tariffs in particular because only a handful of suppliers make steel pipe for energy infrastructure, leaving the domestic market dependent on foreign steel manufacturers.

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The American Petroleum Institute, a trade group representing the oil and gas industry, said earlier this week it was frustrated that the Department of Commerce wasn't providing relief for the energy sector. Federal decision-making hasn't matched up so far with President Donald Trump's strategy of bolstering domestic oil and natural gas, the group stated.

Total U.S. oil production hit 11 million barrels per day for the first time ever last week. The pace of production growth is straining existing pipeline capacity and industry leaders are concerned tariffs would create additional bottlenecks.

"The tariffs have caused all steel prices to spike over the past two months," Zive said.

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Texas Gov. Greg Abbott, a Republican, said in a June letter to Trump that if the steel and aluminum tariffs lead to a cost increase for domestic oil and gas production, it would significantly impair the president's energy sector objectives. Abbot added that estimates show that for every job saved by tariffs, at least one job is lost in the oil and gas sector.

Ed Longanecker, the president of the Texas Independent Producers & Royalty Owners Association, told UPI he's been fielding calls about tariffs from numerous members of his group this week.

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"The lack of concessions on steel tariffs for critical infrastructure projects to alleviate these bottlenecks will result in a reduction of planned infrastructure investment, further exasperating the problem," he said. "Producers will be forced to cut production and revise their drilling programs downward if the administration doesn't take action."

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In a weekend editorial on Cleveland.com, a web platform in partnership with The (Cleveland, Ohio) Plain Dealer, Commerce Secretary Wilbur Ross said domestic steel and aluminum producers were investing heavily again. Aluminum plants are restarting production lines in Kentucky and Missouri, and U.S. Steel Corp. was activating furnaces at its plant in Illinois, putting 800 people back on the line.

"One thing is clear: The remarkable revitalization of American's metal industries would not be happening without President Trump's Section 232 tariffs," he wrote.

Aluminum company Alcoa on Wednesday lowered its financial outlook for the year to reflect "current market prices, tariffs on imported aluminum, increased energy costs, and some operational impacts."

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