Domestic Steel - Thanks But No Thanks
President Trump's Presidential Memorandum Regarding Construction of American Pipelines raised concerns about the feasibility and impact of relying on American-made steel or iron pipe. The Department of Commerce (the Department) has been tasked with developing a plan to address the use of "materials and equipment produced in the United States, to the maximum extent possible and to the extent permitted by law" in the construction of pipelines by July 23, 2017. In response, various trade associations representing the pipeline industry have banded together to make their perspective known and to engage with the Department in developing its plan. While the President's plan initially seemed to be very pro industry, pipeline industry representatives believe that it could, if not implemented properly, have unintended consequences, and thus hinder pipeline development.
While the CEO of U.S. Steel has publicly stated that the "American manufacturing base on steel is fully prepared to supply what is needed for the pipelines," five trade associations (the Associations) representing both liquids and natural gas pipelines (the American Gas Association, the Association of Oil Pipe Lines, the American Petroleum Institute, the Interstate Natural Gas Association of America and GPA Midstream Association) jointly submitted comments in response to the Department's Notice and Request for Comments. While generally in support of the President's objective to grow domestic jobs and boost the economy, the Associations warned that "[t]he plan ... should recognize that global sourcing of steel is currently essential for the continued growth of America's energy pipeline infrastructure and the U.S. economy overall." After all, any rule coming out of the Trump administration's request would be yet another rule that, at least potentially, could further impede pipeline construction or increases costs.
The Associations provided illustrative scenarios highlighting the potential impacts to pipeline projects that may be relying on international steel and iron rather than domestic supply. In particular, the Associations offered an example of an onshore project requiring pipe segments greater than 30 inches in diameter in order to demonstrate the difficulty in obtaining the necessary domestic materials and to identify a mill with the capability to make such large pipe. But how many projects require pipe that is 30 inches or greater in diameter?
Based on LawIQ's data, on average, 34% of natural gas pipeline projects over the past 9 years, and as many as 48% of those filed in 2015, required such pipe. Of the 283 pipeline projects filed since 2008, 97 required pipeline segments that were equal to or greater than 30 inches in diameter. The Associations noted in their comments to the Department that approximately one-half of the mills supplying the U.S. pipeline industry with pipe are located in the U.S., with only forty to fifty mills worldwide supplying the U.S.
Although the limited number of U.S. mills may not be capable of producing domestically sourced pipe to meet these needs, it's entirely possible that the Presidential Memorandum may be less problematic if fewer pipelines are built. On the one hand, some studies suggest that the number of pipeline projects may decline in coming years. Our data suggests this position may have merit if recent precedent is a good guide. For example, the number of natural gas pipeline projects filed in 2016 decreased by 74% from the prior year. On the other hand, with the Energy Information Administration projecting growth in both natural gas and oil production in coming years, as well as the need to supply power generators and overseas LNG demand, the number of pipeline projects requiring U.S. steel may be on the rebound. The first quarter of 2017 saw more pipeline projects than the first quarter of 2016, suggesting that perhaps 2016 was an anomaly.
We may only have seen the tip of the iceberg with the Trump administration's recently renewed initiative to spend $1 trillion on new infrastructure. New legislation could provide additional detail on what's to come for the pipeline industry.
In-Service Pipeline Projects
