By Liz Hampton and Jessica Resnick-Ault
HOUSTON, March 6 (Reuters) - Energy executives say the Trumpadministration's proposed steel and aluminum tariffs could bumpup the cost of big-ticket projects needed for rapidly risingU.S. shale oil and gas output by three to 10 percent.
Higher construction costs could slow growth in productionand exports of crude and natural gas from shale that has madethe United States the world's largest gas producer and secondlargest oil producer.
President Donald Trump's proposal is emerging as a potentialspoiler for new U.S. pipelines, drilling rigs, offshoreplatforms and refineries to handle coming oil and gasproduction. Companies including Exxon Mobil Corp, KinderMorgan Inc and others have outlined tens of billions ofdollars of new steel-intensive petrochemical and pipelineexpansions in the United States.
The administration has not yet formally unveiled its plan.It is unclear whether exemptions would be available for certainsectors, or for steel from places such as Canada, the biggestforeign provider of the metal to the United States. U.S. tradingpartners have said they could counter tariffs with their ownlevies on U.S. exports.
If the proposed tariffs were in place when natural gascompany Freeport LNG was building its first three liquefiednatural gas (LNG) production lines, they would have raised themulti-billion dollar construction cost by about $200 million, orbetween 3.5 percent and 5 percent, Chief Executive Michael Smithsaid in an interview.
Freeport LNG is in the process of building a fourthproduction line at the LNG plant in Texas. Steel tariffs wouldaffect the economics of the plant but not deter the company frombuilding it, Smith said on the sidelines of an industrygathering in Houston.
If the tariffs lead to a trade war with China, then FreeportLNG could suffer because China is among the long-term buyers forthe gas, he said. U.S. export capacity was less than 2 milliontonnes per annum (Mtpa) in 2015, and is expected to top 77 Mtpaby 2022, which would make it the world's No. 2 exporter behindAustralia.
Steel accounts for as much as 30 percent of new drillingproject costs. While higher costs would not halt new drilling inU.S. shale fields, "it could slow it down," Jim Burkhard, vicepresident of oil research for consultancy IHS Markit, said in aninterview.
Benchmark U.S. steel prices hit a seven-year high on Monday,according to data provider S&P Global Platts.
Last month, Turkey's Borusan Mannesmann said it wouldprovide about half the steel for the Gulf Coast Expresspipeline, a $1 billion Kinder Morgan project to move nearly 2billion cubic feet per day of natural gas from the Permian toTexas Gulf Coast. Kinder Morgan declined to comment on thepipeline suppliers.
When the proposal was first announced, sources at ExxonMobil told Reuters that increased costs from tariffs couldaffect the company's plans to build another crude oildistillation unit at its Baytown refinery that would make it thelargest in the United States. The proposal is part of a $20billion expansion of several refining and petrochemicalcomplexes along the U.S. Gulf in coming years.
Since 2010, $85 billion worth of petrochemical projects havebeen started or completed across the United States.
The shale production boom has overcome bigger hurdles,including the Organization of the Petroleum Exporting Countries'efforts to stem its rise a few years ago by flooding the marketwith oil. U.S. energy production is projected to reach 13.2million barrels of oil per day in 2023, up from an average of9.3 million bpd last year, IHS estimates.
Some pipeline projects could be hamstrung if developerscannot buy parts made outside of the United States, said GregArmstrong, CEO of energy storage and transport company PlainsAll American Pipeline. His firm has about $1.5 billionin steel-intensive projects on the drawing board, and some ofthe steel required is not made domestically.
"It's a thornier issue than is printed in the headlines,"said Armstrong. "If you can't get what you need, you kind ofhave to go somewhere else" outside the United States, he said.
(Reporting by Liz Hampton and Jessica Resnick-Ault; Additionalreporting by Erwin Seba and Ernest Scheyder; Writing by GaryMcWilliams; Editing by Richard Chang)
