President Donald Trump’s tariffs on steel are an obstacle to the oil and gas sector, companies warned this week, meaning that they are at odds with his goal of boosting domestic production.
Trump’s 25% tariffs on all steel and aluminum imports went into effect earlier this month to promote the domestic steel industry. The tariffs, though, could raise costs for a range of industries that use steel and aluminum, including oil and gas producers.
Oil and gas service firms expect steel tariffs to slightly decrease customer demand, according to a survey by the Federal Reserve Bank of Dallas earlier this week. Oil and gas service firms generally provide products to support the industry, including equipment, transportation, and other services.
The survey said that 55% of oilfield service firm executives say the steel tariffs will lower demand for their work.
“The administration’s tariffs immediately increased the cost of our casing and tubing by 25 percent even though inventory costs our pipe brokers less,” one anonymous oil production executive wrote in response to the survey. “U.S. tubular manufacturers immediately raised their prices to reflect the anticipated tariffs on steel.”
“Uncertainty around tariffs and trade policy continues to negatively impact our business, both for mid- to long-term planning and near-term costs,” an oil and gas support service executive wrote. “Because of trade tension, especially with Canada, a large operator requested we look to potentially move manufacturing out of the U.S. to support their work in Canada and other international markets.”
Tariffs on steel are a “concern,” said Tim Tarpley, the president of the Energy Workforce & Technology Council, an association representing hundreds of companies in the energy and technology space.
Tarpley says any company that builds rigs, pipelines, or anything used in oil and gas production will absorb the increased cost for materials or pass it along to its customers. He added that this would lead to a rise in production costs for oil and gas in the United States, which could translate to higher prices at the gas pump.
“Over time, it’ll become more expensive to produce oil and gas in the United States, and that will raise the cost of gasoline in the U.S.,” Tarpley said.
He added that the “huge fear” is that the domestic oil basin will be “less competitive against other basins around the world, and it’ll be cheaper to purchase oil and gas from those other basins.”
Tarpley said the organization continues to discuss the issue with the administration, urging them to exempt critical energy components and materials used for oil and gas production to avoid the increased cost of production.
In 2018, the Trump administration imposed tariffs on steel and exempted some countries, but the recent levy removed the exemptions, resulting in all steel imports being taxed at a minimum of 25%. The tariffs affect all countries importing steel to the U.S., including Canada, Mexico, and the European Union.
Some countries, including the EU, have imposed retaliatory tariffs, but Trump has promised reciprocal tariffs on April 2.
Steel is a significant component for industry operations regarding drilling or building pipelines, GasBuddy analyst Patrick DeHaan said.
He added that tariffs on steel won’t drastically affect the industry, but the price of oil will determine whether companies can justify drilling activities.
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The price of oil was around $69 a barrel as of Friday.
“If oil prices were to rise to $80, then the tariff would rise in terms of its importance,” he said. “I don’t think steel tariffs are going to hold anyone back from drilling … the price of oil is still in the driver’s seat.”
