US energy secretary optimistic as tariff proposals in early days

HOUSTON (ICIS)–The US is still in the early stages of its tariff proposals, which could increase the costs of the steel and aluminium needed for oil and gas production, but vigorous dialogue about their effect on the economy is taking place behind closed doors, the secretary of energy said on Monday.

“I think we are early in this,” said Chris Wright, secretary of the US Department of Energy. He made his comments during the CERAWeek by S&P Global energy conference.

“We have, behind closed doors, vigorous debates on tariffs,” Wright said. “It’s definitely not a quasi-religious, dogmatic thing. It’s a dialogue.”

While the debate on tariffs is in its early days, Wright said he is optimistic about the outcome of the policies of the new administration because of the business background of the president and the record of his first term of office in 2016-2020.

CLASHING POLICIES
The administration has enthusiastically expressed support for oil and gas production in the US with President Donald Trump saying “Drill, baby drill” during his speeches.

At the same time, the government has embraced tariffs as a key tool of economic and industrial policy. This includes tariffs on steel and aluminium, key raw materials needed in the oil and gas industry.

On 12 March, the US will impose tariffs of 25% on all imports of steel and aluminium, a move that will remove exemptions that it granted to some countries. The US will expand the tariff to cover more products made of steel and aluminium.

In early April, the US said it would introduce retaliatory tariffs on imports from the rest of the world. These tariffs will consider what the US considers non-tariff trade barriers, such as value added tax (VAT) systems.

The US could also go ahead in early April on proposals to impose 25% tariffs on all imports from Mexico, 10% tariffs on all energy imports from Canada and 25% tariffs on most other imports from Canada. The US is also considering imposing 25% tariffs on imports from the EU. These countries are major suppliers of steel and aluminium to the US.

Already, higher costs in materials as well as labor have raised costs for several fuel and chemical projects.

US-based chemical producer Westlake stressed that it would conduct a cost analysis to take inflation into account before it would consider expanding a joint venture cracker.

More companies could give more large-scale projects second thoughts if tariffs cause further inflation in raw materials.

Oil and natural gas are important for the chemical industry because they are the predominant source of feedstock and energy. Chemical prices tend to rise and fall with those for gas.

In the US, feedstock costs tend to rise and fall with those for natural gas because ethylene plants predominantly rely on ethane as a raw material.

CERAWeek by S&P Global runs through Friday.

Thumbnail shows Chris Wright, secretary of the US Department of Energy. Image by ICIS.