UPDATE 3-Kinder Morgan's $1.75 bln gas pipeline hit with steel tariff -filing

Reuters
Updated

(Adds U.S. rationale for decision, Kinder Morgan no comment)

HOUSTON, May 6 (Reuters) - U.S. pipeline operator Kinder Morgan Inc will pay a tariff on imported steel used in a $1.75 billion natural gas pipeline project, the U.S. Department of Commerce ruled on Monday, dealing a setback to energy industry efforts to avoid the penalties.

The Trump administration last year slapped a 25 percent tariff on imported steel and a 10 percent tariff on aluminum in a bid to safeguard U.S. jobs against overseas rivals. Energy companies have opposed the tariffs, saying they add cost to businesses contributing to the nation's energy security.

The tariff could add up to $80 million to the construction cost of Kinder Morgan's Gulf Coast Express Pipeline, analysts estimated, because about half the project employs some Turkish pipe subject to a 50 percent tariff. It filed for an exemption nearly a year ago, citing the lack of domestic steel and the economic benefits of natural gas exports.

The 514-mile (827-km) pipeline will carry nearly 2 billion cubic feet per day of gas from Texas fields bottlenecked with rising shale gas production to Gulf Coast export hubs. A portion of the line went into operation in August and full service is expected by October.

Steel required by Kinder Morgan's project is available in sufficient quantities and quality from U.S. manufacturers, a Commerce Department review found.

Kinder Morgan spokeswoman Katherine Hill declined to comment on the decision.

In its request for an exemption, Kinder Morgan said the pipeline "not only will enable producers to transport and sell natural gas to consuming markets, it also will unlock additional upstream oil production," of more than 1 million barrels of oil.

After it sought the exemption last May, President Donald Trump authorized the Commerce Department to double tariffs on Turkish steel to 50 percent as a dispute deepened with Turkey over an American pastor detained in the country. The pastor was released in October but the higher tariff remained.

Several U.S. steel makers, including Berg Steel Pipe and Stupp Corp, as well as the American Line Pipe Producers Association (ALPPA), an industry group, had filed objections to Kinder's request, stating they could supply domestic materials for the project.

"ALPPA commends the Commerce Department for denying this exclusion request given the ability of several domestic manufacturers to supply this product," said Tim Brightbill, a partner with Wiley Rein LLP, who represents ALPPA.

Objections from steel makers weigh heavily on decisions made by Commerce, the department has said. (Reporting by Liz Hampton and Gary McWilliams; Editing by Peter Cooney and Tom Brown)