Tariff spat puts oil, gas and coal in the crosshairs

Source: Hannah Northey, E&E News reporter • Posted: Tuesday, June 19, 2018

President Trump appears to be vexing the very energy sector he vowed to revive, as China threatens retaliatory tariffs on everything from U.S. crude to coal and solar panels.

China is poised to tack a 25 percent tariff on a host of U.S. products — including energy and agriculture — triggering a sharp warning from the American Petroleum Institute, the nation’s largest oil and gas lobby, and complaints that the White House failed to consult the group.

“The lack of transparency in the process, as well as the absence of consultation with the U.S. natural gas and oil industry to determine the potential impact on U.S. investments, jobs, and consumers, is especially troubling,” said API’s President and CEO Jack Gerard.

The standoff ramped up last week after the White House announced $50 billion worth of tariffs on a variety of Chinese imports, including nuclear reactors, lithium-ion battery components, vehicles and agriculture equipment, as well as solar cells and panels from China (E&E News PM, June 15).

The administration is imposing the tariffs in two tranches, starting first with goods, totaling $34 billion, the White House said.

China shot back by threatening to impose tariffs in a similar fashion, laying out a list of 545 products — or $34 billion worth of U.S. exports — that will be subject to an additional 25 percent tariff starting July 6.

An industry source confirmed oil products, gasoline and coal appear to be included in a second tranche from China, but no date has been set.

The industry source also said the oil and gas sector will face rising costs from China’s punitive measures as well as tariffs the U.S. imposes on Chinese goods because American companies import compressors, gas turbines, cranes and lifting machinery, parts for offshore platforms, gaskets, motors, pumps, valves, machines for welding, navigation instruments and flow meters, among other things.

Also on high alert is the nation’s coal and mining sector, which has been eager to capitalize on exports, especially amid uncertain domestic demand.

“This is a dynamic situation,” said Conor Bernstein, a spokesman for the National Mining Association. “Exports have been a bright spot for the industry, and anything that could potentially chip away at that would be of concern. Like a lot of folks, we’re in wait-and-see mode.”

Exports have become a focal point for American coal companies after a banner year in 2017. The U.S. Energy Information Administration reported a 61 percent annual increase in shipments overseas last year, totaling 97 million tons of coal.

Thermal coal — the variety predominantly burned for electricity — drove the 2017 spike. Steelmaking metallurgical coal — still the majority of exports — also enjoyed a price bump that increased shipments abroad.

Asia was the biggest area of growth for American producers, with shipments more than doubling to 32.8 million tons (Greenwire, Dec. 21, 2017).

“We’re just going to wait and see,” said Bill Stanhouse, a spokesman for Alabama-based Warrior Met Coal Inc., regarding the tariffs. “That’s about all we can do.”

Analysts, however, don’t see exports as a panacea for the industry because prices must remain high for it to make economic sense for U.S. coal to reach markets like Asia.

What happens next is unclear, said Kevin Book, managing director at ClearView Energy Partners. The soonest the Trump administration could proceed with a second wave of tariffs is 60 days from last Friday, or Aug. 14, he said. If China were to repeat its playbook, the country could issue new counter-tariffs that same day.

“It looks like more escalation before the summer ends,” said Book.

Coal interests have also expressed concern about retaliation from Canada, which is also facing Trump tariffs. A significant portion of U.S. coal to Asia goes through that country’s ports.

Reporter Dylan Brown contributed.