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Trump's Turkey Tariffs Rise to Hit Kinder Morgan Gas Pipeline Project

Trump cited the devaluation of the Turkish lira in his Friday decision to double the steel tariffs for imports from Turkey.

 

President Donald Trump's plan Friday to double tariffs on steel imported from Turkey to 50% could place additional financial pressure on Kinder Morgan's proposed 1.98 Bcf/d Gulf Coast Express Pipeline and dampen prospects for future US natural gas projects.

The escalating trade headwinds for domestic pipeline operators come at a time when transportation constraints in the prolific Permian Basin shale play have increased demand for new takeaway capacity to deliver supplies to market for use in exports and to serve power-hungry Mexico.

Houston-based Kinder Morgan, which moves more than a third of the gas consumed in the US, is sourcing 144,000 mt of steel pipe from Turkish producer Borusan Mannesmann to be used for Gulf Coast Express. Welspun Tubular is set to produce about 175,000 mt for the pipeline at its Little Rock mill.

"We continue to be concerned that these sorts of trade actions threaten important energy infrastructure projects, and ultimately hurt American consumers and businesses," the Interstate Natural Gas Association of America said in a statement.

The trade group for the industry said "companies that made purchasing agreements months or years ago, before the announcement of Section 232 tariffs, are now being unfairly punished for participating in international trade."

A Kinder Morgan spokeswoman, Sara Hughes, declined to say whether Trump's latest decision involving tariffs on steel imports from Turkey would delay or imperil Gulf Coast Express. She noted that the company has a pending request to the US Commerce Department for an exclusion from Trump's previous 25% tariffs on steel imports from Turkey. Kinder Morgan's partners on Gulf Coast Express, DCP Midstream and Targa Resources, did not respond to requests for comment.

Gulf Coast Express is currently first in queue among a handful of pipeline expansions designed to alleviate Permian transportation constraints.

In February, Kinder Morgan launched an open season for the remaining capacity on Gulf Coast Express, which it said it was upsizing because of increased market demand. The $1.75 billion project, for which a positive final investment decision has already been made, is currently scheduled to start up in October 2019.

A second Kinder Morgan project targeting the same supply region, Permian Highway Pipeline, is expected to cost $2 billion and will be designed to transport up to 2 Bcf/d of gas through 430 miles of 42-inch-diameter pipeline from Waha, Texas to the US Gulf Coast and Mexico markets. That project is expected to be in service in late 2020.

Hughes would not say whether Kinder Morgan is interested in sourcing some of the steel for PHP from Turkey, nor how doing so would impact the project's viability. She noted that a final investment decision on PHP has not yet been made. A Borusan Mannesmann official did not respond to an e-mail seeking comment. Section 232 of US trade law gives Trump the right to impose tariffs when imports threaten national security. Initial global tariffs, 25% on steel and 10% on aluminum, went into effect March 23, although the implementation for some countries was delayed until June 1 and a handful of countries made quota deals with the US to avoid the tariffs.

Trump cited the devaluation of the Turkish lira in his Friday decision to double the steel tariffs for imports from Turkey, which recently passed legislation to facilitate steel exports. The White House said documents will be prepared to boost tariffs in line with Trump's decision, which he announced on Twitter.

GLOBAL CONCERNS

Elsewhere, Trump's trade war with allies and adversaries alike also is impacting US pipeline projects.

Cheniere Energy has requested a tariff exclusion for its Midship Pipeline Project. The pipeline is set to stretch from the Anadarko Basin in Oklahoma to existing pipelines that will allow up to 1.44 Bcf/d to be sent to the US Gulf Coast. It is sourcing pipe for that project from a Canadian supplier.

The Commerce Department rejected a similar exclusion request by Plains All American Pipeline for over 155,000 mt of steel for its Cactus II crude pipeline. The operator is sourcing steel for its pipeline from a Greek manufacturer.

OTHER COSTS

Even if Kinder Morgan and Cheniere are granted product exclusions for thei steel needs, they could still face a rise in steel-related production costs. Much of the imported steel used for pipeline projects is also under antidumping and countervailing duty investigations by the US.

Whether and to what extent US pipeline operators can pass the extra costs from tariffs off to their customers through rate adjustments remains unclear. Kinder Morgan CEO Steve Kean was asked that question during a July 18 conference call with investors.

"It is a competitive market, though, and so there is some limit on the ability to try to negotiate a pass-through arrangement with shippers," Kean said.

 

 

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