TPT September 2018

G LOBA L MARKE T P L AC E

G LOBA L MARKE T P L AC E

Mr Graeber explained that WTI has traded at a discount to Brent because, while the US continues to accelerate as a producer, much of the oil remains landlocked because of a lack of pipeline capacity. Commenting in 2015 as the US government lifted a ban on crude oil exports, economists at CME Group expected the spread to narrow because US crude could be more competitive on the open market. However, a cheaper WTI makes it more attractive in some markets. The significance of this was evident on 11 July, 2018, when WTI was trading at a $3.50 per barrel discount to Brent. Mr Graeber noted that the discount swelled to more than $10 in early June on concerns that US oil production was straining existing pipeline capacity. › Ed Longanecker, the president of the Texas Independent Producers & Royalty Owners Association, told UPI that some companies were stocking up on pipe, while others were discussing a possible cutback on future projects. “The US technically imports steel from more than 100 countries, but three-quarters of that comes from about ten,” Mr Longanecker said. “Domestic suppliers will certainly seek to capitalise on the tariffs. But the industry is not capable of supplying the quantity of specialist material needed by many sectors. Nor can the oil and gas industry simply absorb the higher cost of sourcing domestically.” › Clearly, the disruptive effects of President Donald Trump’s steel and aluminium tariffs are not confined to the metals sector. Nationalisation of a Canadian pipeline project introduces a new debate topic: will oil and gas be allowed to expand at all? Peter Kujawinski was US consul general in Calgary, the headquarters of Canada’s oil and gas industry, from 2012 to 2015 and is now a Chicago-based writer and consultant. In an article for the New York Times (“Canada’s Troubled Pipeline Projects,” 30 May), he warned that political and societal risks are on the rise for fossil fuel companies in Canada, the US and Europe. Mr Kujawinski was writing in the wake of Ottawa’s decision to effectively neutralise opposition to the Trans Mountain pipeline by nationalising it. In his view, the purchase by Prime Minister Justin Trudeau’s government of Trans Mountain from the Houston-based energy infrastructure company Kinder Morgan for C$4.5bn underscores just how difficult it has become to build fossil fuel projects, “at least in wealthy, democratic countries, long thought to pose fewer political and social risks than developing countries.”

Oi l and gas While their niche pipeline supplies are probably reliable, some American exporters are looking at stockpiling, cutbacks “The global shipping industry is ready to service the US demand for steel, be it pipelines or any other product,” Peter Sand, the chief shipping analyst for the Baltic and International Maritime Council (BIMCO), told United Press International (UPI). Based in Denmark, BIMCO is the largest of the international associations representing ship owners, and its members in more than 120 countries control some 65 per cent of the world’s tonnage. Mr Sand’s assurance was prompted, of course, by the US imposition in June of a 25 per cent tariff on steel imports and a 10 per cent tariff on aluminium imports, following the Commerce Department’s declaration in January that such imports threaten national security. In 2017, according to the US Census Bureau, 40 per cent of total steel imports came from Canada, Mexico and the European Union, with Canadian deliveries of around 9 million tons accounting for the bulk of it. While about 30 per cent of total US steel demand is satisfied by imports, because most domestic producers focus on sectors like automotive, only a handful of niche suppliers supply pipelines. (“Shippers Respond to US Steel Needs in the Face of Tariffs,” 11 July) As reported by Daniel J Graeber of UPI, on the prospects for a broader trade war BIMCO said it expects to see a change in the trade lanes preferred by oil tankers and gas shippers. The industry most exposed to risk would be US crude oil exports, it said. As the US government increased the pressure on Beijing on 11 July, BIMCO noted that China was responsible for 25 per cent of total US seaborne crude oil exports by volume last year. For its part, China proposed a reciprocal response to US trade pressures by targeting US crude oil exports. Sandy Fielden, the director for oil and products research at the Chicago-based research and investment management firm Morningstar, said in response to emailed questions from Mr Graeber that the shift in trade could impact the price of oil. S tocking up on pipe “If US crude doesn’t flow to China it will flow elsewhere, probably at a discount,” Mr Fielden told UPI. “That means a wider Brent/WTI spread.” The spread refers to the difference between the price for Brent crude oil and West Texas Intermediate, the US benchmark for the price of oil.

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SEPTEMBER 2018