closing general session: tariffs and the potential impact

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


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


6 OCTOBER 30, 2018


• 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


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


1,000Mt

Pipeline and Drilling Steel, World, 2017

Pipeline and Drilling Steel, World, 2018


9 OCTOBER 30, 2018


0.0

0.5

1.0

1.5

2.0

2.5

3.0


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


MMMt

Total Steel, Quota Countries, 2017

Total Steel, Quota Countries, 2018


10 OCTOBER 30, 2018


0

50

100

150

200

250

300

350

400


1,000Mt

Pipeline and Drilling Steel, Tariff Countries, 2017

Pipeline and Drilling Steel, Tariff Countries, 2018

0

50

100

150

200

250

300


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


• 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)


12 OCTOBER 30, 2018


• 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


13 OCTOBER 30, 2018


• 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


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


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


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


0.0

0.1

0.2

0.3

0.4

0.5

0.6


MMMt

Total Steel, E.U., 2017 Total Steel, E.U., 2018

0

20

40

60

80

100

120


1,000Mt

Pipeline and Drilling Steel, E.U., 2017

Pipeline and Drilling Steel, E.U., 2018


21 OCTOBER 30, 2018


0.0

0.1

0.2

0.3

0.4

0.5


MMMt

Total Steel, Korea, 2017

Total Steel, Korea, 2018

0

50

100

150

200

250


1,000Mt

Pipeline and Drilling Steel, Korea, 2017

Pipeline and Drilling Steel, Korea, 2018


22 OCTOBER 30, 2018


0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7


MMMt

Total Steel, Canada, 2017

Total Steel, Canada, 2018

0

10

20

30

40

50

60


1,000Mt

Pipeline and Drilling Steel, Canada, 2017

Pipeline and Drilling Steel, Canada, 2018


23 OCTOBER 30, 2018


0.0

0.1

0.1

0.2

0.2

0.3

0.3

0.4

0.4


MMMt

Total Steel, Mexico, 2017

Total Steel, Mexico, 2018

0

10

20

30

40

50

60

70

80


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


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


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


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


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


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.


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

closing general session: tariffs and the potential impact

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