closing general session: tariffs and the potential impact
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Closing General Session:
Tariffs and the Potential Impact in International Energy Markets from NAFTA
to Asia and the European Union October 30, 2018, 3:45 – 5:15 pm
Moderator: Janna Chesno, Senior Counsel, Regulatory Projects & Policy, Cheniere Energy, Inc. Speakers: Kevin Book, Managing Director, ClearView Energy Partners David Lang, Partner, Baker & McKenzie LLP Aaron P. Padilla, Senior Advisor, International Policy, API
Political Punch in Oil MarketsKEVIN BOOKMANAGING DIRECTOR
ENERGY BAR ASSOCIATION MID-YEAR CONFERENCEOCTOBER 30, 2018
TARIFFS AND POTENTIAL IMPACT ON
INTERNATIONAL ENERGY MARKETS
DISCLOSURES
RisksLegislative, regulatory and diplomatic agendas are subject to change.
Analyst CertificationsI hereby certify that the views expressed in this presentation accurately reflect my personal views as of the date of this presentation. I further certify that no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views contained in this presentation.
By: Kevin Book
DisclosuresThe opinions, forecasts, recommendations, projections and interpretations of macro events contained in this report are those of the analysts preparing this report and are based upon information available to them as of the publication date of this report.
The analysts preparing this report based the opinions, forecasts, recommendations, projections and interpretations of macro events contained herein on sources they believe to be accurate and reliable, but completeness and/or accuracy is neither implied nor guaranteed.
The opinions, forecasts, recommendations projections and interpretations of macro events contained herein are subject to change without notice.
The analysts preparing this report are not registered lobbyists and do not advocate or lobby for any particular policy action on behalf of clients.
Although this report may mention specific companies by name and/or specific industries and industry sectors, this report was not prepared, is not intended and should not be interpreted as a research report regarding the equity securities of any company.
(c) 2018 ClearView Energy Partners, LLC.
2 OCTOBER 30, 2018
AGENDA
- Bidirectional U.S. Energy Trade With Canada and Mexico
- Energy Market Implications of Escalating Trade War
- 1962 Trade Expansion Act, Section 232: Pipeline and Drilling Steel Imports
- 1974 Trade Act, Section 201: Solar Panel and Module Imports
- 1974 Trade Act, Section 301: LNG, Ethanol and Petroleum Exports
- Discussion
3 OCTOBER 30, 2018
Source: ClearView Energy Partners, LLC
SIZING CANADIAN AND MEXICAN ENERGY/RELATED TRADE WITH U.S. (1)
4 OCTOBER 30, 2018
Source: ClearView Energy Partners, LLC, using U.S. Census data for nominal value of goods on a TTM basis through August 2018; percentages reflect U.S. trade in given commodity
$293.5 MM
$362.8 MM
Coal and Related:
Canada + Mexico =
~13% of Total
$51.3B
$13.2B
Crude Oil:
Canada + Mexico =
~42% of Total
$1.1B
$25.3 B
RefinedProducts:
Canada + Mexico =
~34% of Total
$2.0 B
$2.1B
LPGs and Related:
Canada + Mexico =
~24% of Total
$8.3MM
$794.2MM
LNG:
Canada + Mexico =
~15% of Total
SIZING CANADIAN AND MEXICAN ENERGY/RELATED TRADE WITH U.S. (2)
5 OCTOBER 30, 2018
Source: ClearView Energy Partners, LLC, using U.S. Census data for nominal value of goods on a TTM basis through August 2018; percentages reflect U.S. trade in given commodity
$3.9B
$2.1B
PipelineGas:
Canada + Mexico =
100% of Total
$1.8B
$0
ElectricPower:
Canada + Mexico =
100% of Total
$178.1MM
$755.9MM
Pipeline andDrilling Steel:
Canada + Mexico =
~27% of Total
$44.1MM
$51.7MM
Ethanol:
Canada + Mexico =
~6% of Total
$65.6B
$127.3B
AllGoods:
Canada + Mexico =
~28% of Total
SIZING CANADIAN AND MEXICAN ENERGY/RELATED TRADE WITH U.S. (3)
6 OCTOBER 30, 2018
Source: ClearView Energy Partners, LLC
• On a TTM basis through August 2018, global bidirectional trade in the foregoing energy goods totaled ~$41.4 B, representing ~9.1% of total bidirectional trade over that interval (~$3.6 T).
• Bidirectional trade in pipeline and drilling steel comprised another ~$5.9 B (~0.16%)
• Over the same interval, U.S. bidirectional trade with Canada and Mexico in the foregoing energy goods totaled ~$129 B, representing ~3.4% of total bidirectional trade.
• Bidirectional trade in pipeline and drilling steel comprised another ~$1.58 B (~0.04%).
A MIDSUMMER’S SINO-AMERICAN ENERGY TRADE WAR
7 OCTOBER 30, 2018
Section 232: Steel and Aluminum Tariffs (25%, ex. Quotas/Exceptions)3/23/2018
Chinese Retaliation Against Steel (15-25%), Targets Ethanol.4/2/2018
Section 301 (~$34 B/Y, 25%): Nuclear Reactors, Batteries, etc.7/6/2018
Chinese Retaliation Against Section 301 (~$34 B/Y, 25%): Ethanol (Again), EVs, etc.
7/6/2018
Section 301 (~$16 B/Y, 25%): Lubricating Oils8/23/2018
Chinese Retaliation Against Section 301 (~$16 B/Y, 25%): Coal, Refined Products, LPGs, etc.
8/23/2018
Section 301 (~$200 B/Y, 10%): Ethanol, Coal, Oil, LPGs, etc.
9/17/2018
Chinese Retaliation Against Section 301 (~$60B/Y, 5-10%): LNG, Biodiesel, Steel
9/17/2018
Source: ClearView Energy Partners, LLC
STEEL IMPORTS, CY 2017 AND 2018 YTD THRU SEPTEMBER (1)
8 OCTOBER 30, 2018
Source: ClearView Energy Partners, LLC, using Department of Commerce ITA data
0.0
1.0
2.0
3.0
4.0
J F M A M J J A S O N D
MMMt
Total Steel, World, 2017
Total Steel, World, 2018
0
100
200
300
400
500
600
J F M A M J J A S O N D
1,000Mt
Pipeline and Drilling Steel, World, 2017
Pipeline and Drilling Steel, World, 2018
STEEL IMPORTS, CY 2017 AND 2018 YTD THRU SEPTEMBER (2)
9 OCTOBER 30, 2018
Source: ClearView Energy Partners, LLC, using Department of Commerce ITA data
0.0
0.5
1.0
1.5
2.0
2.5
3.0
J F M A M J J A S O N D
MMMt
Total Steel, Tariff Countries, 2017
Total Steel, Tariff Countries, 2018
0.0
0.2
0.4
0.6
0.8
1.0
1.2
J F M A M J J A S O N D
MMMt
Total Steel, Quota Countries, 2017
Total Steel, Quota Countries, 2018
STEEL IMPORTS, CY 2017 AND 2018 YTD THRU SEPTEMBER (2)
10 OCTOBER 30, 2018
Source: ClearView Energy Partners, LLC, using Department of Commerce ITA data
0
50
100
150
200
250
300
350
400
J F M A M J J A S O N D
1,000Mt
Pipeline and Drilling Steel, Tariff Countries, 2017
Pipeline and Drilling Steel, Tariff Countries, 2018
0
50
100
150
200
250
300
J F M A M J J A S O N D
1,000Mt
Pipeline and Drilling Steel, Quota Countries, 2017
Pipeline and Drilling Steel, Quota Countries, 2018
STEELING FOR BATTLE: A SUMMARY (1)
11 OCTOBER 30, 2018
Source: ClearView Energy Partners, LLC, using Department of Commerce ITA data
• Commerce determined that limiting 13.3 MM Mt/Y of imports would increase U.S. steel works’ capacity utilization from ~72% to 80%.
• In CY 2017,
– All steel imports totaled ~34.47 MM Mt
– Pipeline and drilling steel imports totaled ~5.13 MM Mt
• TTM thru 9/2018,
– All steel imports totaled ~31.81 MM Mt (a ~7.72% decline vs. CY 2017)
– Pipeline and drilling steel imports totaled ~4.85 MM Mt (a 5.46% decline vs. CY 2017)
STEELING FOR BATTLE: A SUMMARY (2)
12 OCTOBER 30, 2018
Source: ClearView Energy Partners, LLC, using Department of Commerce ITA data
• Quotas stop imports, tariffs raise prices.
• In tariff countries (i.e., all ex. Australia, Argentina, Brazil and Korea),
– Pipeline and drilling steel imports YTD 9/2018 were up ~6.3% vs. YTD 9/2017
– Overall steel imports YTD 9/2018 were down ~7.34% vs. YTD 9/2017
• In quota countries (e.g., Argentina, Brazil and Korea),
– Pipeline and drilling steel imports YTD 9/2018 were down ~22.25% vs. YTD 9/2017
– Overall steel imports YTD 9/2018 were down ~8.71% vs. YTD 9/2018
STEELING FOR BATTLE: A SUMMARY (3)
13 OCTOBER 30, 2018
Source: ClearView Energy Partners, LLC, using Department of Commerce ITA data
• More production + more pipeline construction = more drilling and pipeline steel imports.
• As a share of overall steel imports, pipeline and drilling steel
– Comprised 15.2% of TTM 9/2018 imports as a whole (vs. 14.9% in CY 2017)
– Comprised 21.7% of TTM 9/2018 quota country imports (vs. 25.5% in CY 2017)
– Comprised 13.3% of TTM 9/2018 tariff country imports (vs. 11.6 in CY 2017)
SOLAR TARIFF-RATE QUOTAS WENT INTO FORCE IN JANUARY 2018
14 OCTOBER 30, 2018
Source: ClearView Energy Partners, LLC, using USITC data
$0
$200
$400
$600
$800
$1,000
1/20
17
2/20
17
3/20
17
4/20
17
5/20
17
6/20
17
7/20
17
8/20
17
9/20
17
10/2
017
11/2
017
12/2
017
1/20
18
2/20
18
3/20
18
4/20
18
5/20
18
6/20
18
7/20
18
8/20
18
$ MM
Imports of Solar Cells, Panels and Modules ($ MM)
CHINA ETHANOL WINDOW OF OPPORTUNITY OPENS, CLOSES AGAIN
15 OCTOBER 30, 2018
Source: ClearView Energy Partners, LLC, using USITC data
0
5
10
15
20
25
30
35
1/20
17
2/20
17
3/20
17
4/20
17
5/20
17
6/20
17
7/20
17
8/20
17
9/20
17
10/2
017
11/2
017
12/2
017
1/20
18
2/20
18
3/20
18
4/20
18
5/20
18
6/20
18
7/20
18
8/20
18
kbbl/d
Ethanol Exports to China (kbbl/d)
CHINESE RETALIATORY TARIFFS ON U.S. LNG BEGAN IN SEPTEMBER 2018
16 OCTOBER 30, 2018
Source: ClearView Energy Partners, LLC, using USITC data
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
1/20
17
2/20
17
3/20
17
4/20
17
5/20
17
6/20
17
7/20
17
8/20
17
9/20
17
10/2
017
11/2
017
12/2
017
1/20
18
2/20
18
3/20
18
4/20
18
5/20
18
6/20
18
7/20
18
8/20
18
Bcf/d
LNG Exports to China (Bcf/d) TTM LNG Exports to China (Bcf/d)
CHINA’S 25% TARIFF ON U.S. REFINED PRODUCTS BEGAN IN JULY 2018
17 OCTOBER 30, 2018
Source: ClearView Energy Partners, LLC, using EIA data
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
1/20
17
2/20
17
3/20
17
4/20
17
5/20
17
6/20
17
7/20
17
8/20
17
9/20
17
10/2
017
11/2
017
12/2
017
1/20
18
2/20
18
3/20
18
4/20
18
5/20
18
6/20
18
7/20
18
Share(%)
China Share of Gross U.S. Products Exports (%)
NO TARIFFS ON CRUDE, BUT NO AUGUST 2018 CHINESE IMPORTS, EITHER
18 OCTOBER 30, 2018
Source: ClearView Energy Partners, LLC, using USITC data
0
100
200
300
400
500
600
1/20
17
2/20
17
3/20
17
4/20
17
5/20
17
6/20
17
7/20
17
8/20
17
9/20
17
10/2
017
11/2
017
12/2
017
1/20
18
2/20
18
3/20
18
4/20
18
5/20
18
6/20
18
7/20
18
8/20
18
kbbl/d
Crude Exports to China (kbbl/d) TTM Crude Exports to China (kbbl/d)
Political Punch in Oil MarketsDISCUSSION
STEEL IMPORTS, CY 2017 AND 2018 YTD THRU SEPTEMBER (R1)
20 OCTOBER 30, 2018
Source: ClearView Energy Partners, LLC, using Department of Commerce ITA data
0.0
0.1
0.2
0.3
0.4
0.5
0.6
J F M A M J J A S O N D
MMMt
Total Steel, E.U., 2017 Total Steel, E.U., 2018
0
20
40
60
80
100
120
J F M A M J J A S O N D
1,000Mt
Pipeline and Drilling Steel, E.U., 2017
Pipeline and Drilling Steel, E.U., 2018
STEEL IMPORTS, CY 2017 AND 2018 YTD THRU SEPTEMBER (R2)
21 OCTOBER 30, 2018
Source: ClearView Energy Partners, LLC, using Department of Commerce ITA data
0.0
0.1
0.2
0.3
0.4
0.5
J F M A M J J A S O N D
MMMt
Total Steel, Korea, 2017
Total Steel, Korea, 2018
0
50
100
150
200
250
J F M A M J J A S O N D
1,000Mt
Pipeline and Drilling Steel, Korea, 2017
Pipeline and Drilling Steel, Korea, 2018
STEEL IMPORTS, CY 2017 AND 2018 YTD THRU SEPTEMBER (R3)
22 OCTOBER 30, 2018
Source: ClearView Energy Partners, LLC, using Department of Commerce ITA data
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
J F M A M J J A S O N D
MMMt
Total Steel, Canada, 2017
Total Steel, Canada, 2018
0
10
20
30
40
50
60
J F M A M J J A S O N D
1,000Mt
Pipeline and Drilling Steel, Canada, 2017
Pipeline and Drilling Steel, Canada, 2018
STEEL IMPORTS, CY 2017 AND 2018 YTD THRU SEPTEMBER (R4)
23 OCTOBER 30, 2018
Source: ClearView Energy Partners, LLC, using Department of Commerce ITA data
0.0
0.1
0.1
0.2
0.2
0.3
0.3
0.4
0.4
J F M A M J J A S O N D
MMMt
Total Steel, Mexico, 2017
Total Steel, Mexico, 2018
0
10
20
30
40
50
60
70
80
J F M A M J J A S O N D
1,000Mt
Pipeline and Drilling Steel, Mexico, 2017
Pipeline and Drilling Steel, Mexico, 2018
Challenging Steel Import TariffsDavid Lang, Partner – Global Head of LNGEnergy Bar Association Mid-Year ConferenceOctober 30, 2018
Agenda1 Introduction to Section 232
2 Proclamation 9705
3 Exclusions from 25% Tariff
4 Legal Challenges to Proclamation 9705
5 Constitutional Challenge to Section 232
6 Conclusion
© 2018 Baker & McKenzie LLP
Introduction to Section 232
3
• Trade Expansion Act of 1962, a key Kennedy administration legislative victory, granted President wide authority to cut tariffs
• Carve-out: Section 232 (19 USC 1862) – Safeguarding national security• National Security Investigation by Secretary of Commerce• Presidential Determination• Considerations of Secretary and President
‒ Ability to meet production requirements for national defense‒ Impact of foreign competition on economic welfare
• Congressional disapproval limited to petroleum and petroleum products
© 2018 Baker & McKenzie LLP
Proclamation 9705
4
• Cites Secretary of Commerce’s Jan 11, 2018 Report• Commerce recommended global tariff of 24% on steel articles• President imposed global tariff of 25%; exempts Canada and Mexico• Allows domestic parties to apply for exclusions• Subsequent proclamations adjust 9705
‒ 9711 temporarily exempts Argentina, Australia, Brazil, S Korea, EU‒ 9740 further extends exemptions, with S Korea indefinitely ‒ 9759 indefintely extends for Argentina, Australia and Brazil; Canada,
Mexico and EU not exempted‒ Ongoing changes as “trade war” continues
© 2018 Baker & McKenzie LLP
Exclusions from 25% Tariff
5
• Secretary of Commerce authorized to grant exclusions• Requirements for steel articles:
‒ not produced in the United States in sufficient quantity/quality; or‒ specific national security considerations
• Request must be made by directly affected party in the United States• Additional requirements from Commerce limit possibility of relief• As of early summer, >20,000 requests had been made
© 2018 Baker & McKenzie LLP
Legal Challenges to Proclamation 9705
6
• Severstal v. United States – filed Mar 22, 2018 in US Court of Interntaional Trade
• National security justifications of 9705 allegedly pretextual• Claims executive authority exercised in excess of Congress’s delegation• Preliminary injunction denied• Plaintiff arguments:
‒ Clear misconstruction of national defense requirements‒ Flawed process – inadequate review of economic welfare factors‒ Failure to follow Commerce recommendations
© 2018 Baker & McKenzie LLP
Constitutional Challenge to Section 232
7
• AIIS v. United States – filed June 27, 2018 in US Court of Interntaional Trade
• Addresses constitutionality of Section 232 instead of its application• Plaintiff arguments – Section 232 lacks intelligible principle required for
congressional delegation of authority• Asks for upending 60 years of congressional deference• Last SCOTUS overturn of congressional deference was during the New
Deal – led to court-packing plan • On point case, Federal Energy Administration v. Algonquin, would need
to be overturned or distinguished
© 2018 Baker & McKenzie LLP
Conclusion
8
• Section 232 steel tariffs difficult to avoid• Presidential authority on trade allows continued adjustment of policy on
steel tariffs without congressional action• Legal challenges to steel tariffs face uphill battle• Change to steel tariffs only likely through political process
‒ Congressional action‒ New executive policy
Baker & McKenzie LLP is a member firm of Baker & McKenzie International, a global law firm with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a "partner" means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an "office" means an office of any such law firm. This may qualify as “Attorney Advertising” requiring notice in some jurisdictions. Prior results do not guarantee a similar outcome.
© 2018 Baker & McKenzie LLP
www.bakermckenzie.com
1
Aaron Padilla, Ph.D.Senior Advisor, International Policy
API
US Natural Gas & Oil Industry Perspectives on Trade Policy
2
“…is free trade really making global markets more efficient?...Or is it simply strengthening our adversaries and creating a world
where countries who abuse the system - such as China - are on the road to economic and military dominance?
If Mr. Trump’s potential campaign does nothing more than force a real debate on those questions, it will have done a service to
both the Republican Party and the country.”
-Robert Lighthizer2011
3
Free Trade enables US Energy Exports & North America Energy Integration
4
0
5
10
15
2007 2009 2011 2013 2015 2017
Crude oil and NGL production Petroleum net imports
sources: EIA, API Monthly Statistical Report
US crude oil and natural gas liquids (NGL) production vs.Net imports of crude oil and products
Million barrels per day
In 2018, U.S. petroleum net imports fell to their lowest levels in more than 50 yearsIn 2016, crude oil from Canada and Mexico rose to 48.7% of total U.S. imports vs. 33.9% in 2010
Rising US Production & North America Integration Benefit US Energy Security
5
US crude oil and natural gas liquids (NGL) production vs.Net imports of crude oil and products
Access to Mexico’s Opening Market also Benefits US Energy Security
44%
11%
45%
Mexico Blocks Awarded to Foreign Investors, 2015-present
API Member Company
Non-API MemberCompany (China, Russia)
Non-API MemberCompany (Other)
API Member Companies: BP, BHP, Chevron, Equinor, ExxonMobil, Murphy Oil, Repsol, Shell, Total
6
API Priority Issues NAFTA USMCA No NAFTA
Zero TariffsMarket AccessInvestment Protections and ISDSCertificates of Origin and Diluent Rule of OriginTerm Extension and Review (“Sunset Clause”)
(not present) N/A
Liberalized Hydrocarbon Trade
API Member Companies Support USMCA
7
API Member Companies Oppose Tariffs and Quotas on Steel
Section 232 Tariffs
24 API Members SubmittingPetitions for Product Exclusions
580 Total API Member Petitions
42 Granted
52 Denied
100% Granted had no Objections from US Steel Producers
100% Denied had Objections or were deemed “incomplete”
4 Petitions Denied were same as ones that were Granted
US Natural Gas & Oil Industryrelies on imports of globally competitive,
specialty steel pipe
Data as of October 2, 2018
8
US Section 301 Tariffs Harm API Member Companies
Sec. 301 tariffs harm imports of dozens of industrial components used in US energy infrastructure
Barite – weighting agent in drilling fluids – is only item excluded among dozens requested
9
China Retaliation to US 301 Tariffs Harms US LNG Exports
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