March 20, 2018

Tariffs and Trade Agreements Impact U.S. Energy Dominance

By Todd Staples, President of Texas Oil & Gas Association

AUSTIN – American energy dominance isn’t just a catchy slogan. It is here and has distinctly been made possible by Texans. Texas leads the nation in oil and natural gas production, pipeline miles and refining capacity, all of which bolster our nation’s energy security. America’s position as a global energy leader – and Texas’ contribution to maintaining that position – are directly impacted by federal policies like trade agreements and tariffs.

Federal initiatives like tax reform and a renewed commitment to science-based regulations encourage expanded oil and natural gas investments and create good jobs for Texans. However, a recent decision to impose federal tariffs on imported steel and aluminum is a step in the wrong direction as we work to cement our energy security and economic growth. Tariffs on imported steel and aluminum will increase costs and threaten jobs across the entire oil and natural gas sector.

Increasing line pipe costs by 25 percent, for example, would add $76 million to a typical pipeline project, according to the Association of Oil Pipe Lines. Bigger pipeline projects could cost as much as $300 million more. If we are to continue to meet our energy demands, we need more pipelines and public policies that make it economical to build them. Expanding energy infrastructure is the best way to increase energy reliability and security and to protect our fuel supply in the event of a natural disaster like Hurricane Harvey.

Beyond price, the decision to tax imported steel does not seem to consider the issue of availability. Oil and natural gas operators in Texas and across the nation use specialty steel that is not widely available from U.S. steel mills. Only a handful of domestic mills manufacture pipe that is the size and thickness needed for many U.S. pipeline projects.

While tariffs present an obstacle to growth, current negotiations related to the North American Trade Agreement (NAFTA) present a tremendous opportunity. As the nation’s top producer of oil and natural gas and the largest border state with Mexico, we have a lot at stake as we work to provide energy resources to our neighbors. NAFTA has served as the essential framework that has allowed all sectors of the Texas oil and natural gas industry to grow and prosper.

As part of the negotiation process, we are hopeful that NAFTA will be made permanent and that provisions are included to keep Mexico’s energy market open to the U.S. It is also imperative to maintain the current strong provisions that enforce fair trade practices that keep our industry competitive. As American oil and natural gas operators make massive investments to get products to market, certainty, fairness and permanence will encourage even more investment and job growth that will benefit both of our nations.

Tariffs and trade agreements matter in Texas because when our state’s oil and natural gas industry does well, all Texans do well. As the industry’s remarkable recovery continued, oil and natural gas companies paid more than $11 billion in state and local states and state royalties in fiscal year 2017 – a $1.6 billion increase from the previous year. Those funds directly support our schools, roads and first responders.

The benefits of a healthy Texas oil and natural gas industry extend beyond local treasuries. Texas’ surging oil and natural gas production, growing pipeline infrastructure, and expanding export and refining capacity were central to several recent energy-related milestones in America.

When the U.S. crossed the threshold of producing 10 million barrels of crude oil a day, 40 percent of that production came from Texas. America’s crude oil imports are down 20 percent from 2006 and in January, our crude oil exports were more than double the average from the previous year. The U.S. became a net exporter of natural gas in 2017 and those exports are expected to increase more than 10-fold in 2019 – thanks in part to the seven LNG facilities planned or under construction in Texas. Meanwhile, soaring production is driving massive investment in pipelines, refining capacity, and petrochemical manufacturing along the Texas Gulf Coast.

These energy outcomes were unthinkable a decade ago and they are a direct result of Texans’ strong workforce, dedication to innovation, and consistent regulations and policies. We have to work to preserve this progress and we need smart public policy – at all levels of government – to encourage continued energy prosperity for America.

This press release first appeared in the Rio Grande Guardian on 3/16/18.