President Trump ordered a new 25% tariff on steel imports that could raise costs for some pipeline projects, though East Daley expects the effects will be offset by stockpiles from canceled projects.
On February 11, President Trump issued an executive order eliminating exemptions from a 25% tariff for steel and aluminum imports, effective March 12, 2025. Currently, many of the US’ largest trade partners in steel receive exemptions from the tariff, including Canada, Mexico, Brazil, South Korea and Germany. The US is one of the top five producers of steel in the world.
The tariff could raise capital costs for pipeline expansions using foreign steel. Midstream companies have commercialized multiple projects in recent months, especially in the Southeast where LNG exports, utility expansions, and developing data center markets are competing for gas molecules. These projects will need steel pipe, in some cases hundreds of miles of it.
East Daley Analytics expects a stockpile of steel amassed over the past 5-7 years will dampen the effects of the tariff. We analyzed the Energy Information Administration’s gas and liquids project data set and estimate ~205,000 inch-miles of pipeline associated with 35 recently canceled projects (an inch-mile is the # of pipe miles multiplied by the pipeline diameter).
The Keystone XL project stands out on our list with ~42,000 inch-miles, from a planned 1,179 miles of 36-inch pipeline. Notably, South Bow (SOBO), the oil pipeline spinoff of TC Energy (TRP), has repurposed some of the pipeline from the canceled Keystone project, recently reaching an agreement to sell 180 miles of pipe to Cadiz Inc. for a groundwater project.
The 35 projects we identified could provide some reprieve from the steel tariff, assuming developers ordered pipeline ahead. But in the long term, tariffs will raise costs and make the economics of new projects more challenging.
Headwinds from higher material costs would mix with the tailwinds EDA is observing in increased rates. We are seeing lower build multiples and higher shipping rates for recent utility-backed projects, including the Southeast Supply Enhancement on Williams’ (WMB) Transcontinental pipeline and the South System Expansion 4 on Kinder Morgan’s (KMI) Southern Natural system.
Price inelasticity for power producers’ gas transport costs will enable lower build multiples in the short term, but tariff could push build multiples back to the 6.0-7.0x range in the long term. Of course, changes in build multiples will depend on the elasticity of power producers, who can support higher rates by passing some costs on to downstream customers. – Zach Krause Tickers: KMI, SOBO, TRP, WMB.
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