PESA Vice President Government Affairs Tim Tarpley testified before the U.S. International Trade Commission on June 17, 2019. The following is the transcript of PESA’s testimony. (Full transcript available here.)
Committee Chairman Busis, and distinguished members of the Section 301 Committee, thank you for permitting me to appear today.
My name is Tim Tarpley, and I serve as Vice President of Government Affairs for the Petroleum Equipment and Services Association (PESA). I appear today on behalf of PESA.
PESA is the national trade association representing over 200 companies that provide the services, technology, equipment and expertise necessary to safely and efficiently explore and produce oil and natural gas. PESA serves as the unified voice for the oilfield services and equipment sector, advocating for, and supporting the sector’s achievements in job creation, technological innovation and economic stability.
The oil and gas supply, services, and manufacturing sector supports over 592,829 jobs in the United States. To meet rising global demand, increased production will necessitate infrastructural modernizations and supply chain expansions, making the sector even more critical. These factors, along with increasing demand for oil and gas worldwide, paint an optimistic picture for employment opportunities in the coming years. This opportunity is good news for the American economy, and for the American worker.
The service and equipment sector is on the front lines of supporting the American energy renaissance that has occurred in recent years. Right before Christmas, The United States received truly incredible news from U.S. Energy Department. For the first time, according to Energy Department figures dating back to 1973, the United States exported more crude oil and fuel then it imported. The United States is now exporting over 2.8 million bpd thanks to a 2015 end to the four-decade old ban on crude oil exports and tremendous growth in US production thanks to fracking in the Permian basin and other areas of the US. Some of the top destinations of US crude oil exports are countries like Brazil, Japan and China. Crude oil exports can help reverse the US trade deficit with these countries and provide an option for their reliance on Middle Eastern or Russian oil.
Moreover, the U.S. oil and gas industry hit another important milestone recently. According to the US Energy Information Association anticipates that by the end of 2019, LNG export capacity will reach 8.9 billion cubic feet per day making the United States the third largest in the world behind Australia and Qatar. This dominance will allow the US to provide an alternative supply to Asia and Europe to counter Russian dominance in the gas markets. In order to keep this renaissance going, US equipment and service providers need uninterrupted access to the products that are critical for operations.
PESA applauds the administration’s efforts to aggressively target China to curb unfair trade practices and to equalize the $32 billion a month trade gap between our two countries. Forced technology transfers and commercial espionage are common in China, and some PESA members have faced negative consequences from these actions by China. However, PESA believes that some of the proposed tariffs will not be successful in USTR’s stated goal of combatting China’s unfair trade practices, and instead could unintentionally harm the energy manufacturing and service sectors, areas where the US currently enjoys worldwide dominance.
PESA is especially concerned about the specific HTS codes contained in “List 4” which target minerals used in the drilling process that are critical to operations. Natural Barium Sulfate (Barite) is a mineral commonly used as a weighting agent for all types of drilling fluids and is used to facilitate operation of the drill bit, remove cuttings, and to maintain control of the well during drilling operations. This material is targeted by HTS codes 2511.10.10 and 2511.10.50.
PESA believes that Barite fits the definition of a “irreplaceable product”. 75% of global Barite usage is a used as a weighing agent in drilling fluids for oil and gas exploration. Barite is ideal for this application because it is non-toxic, chemically and physically unreactive, non-metallic, and has low abrasiveness. All alternative options are typically metallic in nature and less productive.
Secondarily, PESA does not believe that the imposition of a 25% duty on Barite will have the desired effect on China. At the proposed rate, it will become economically infeasible to import Barite from China to the U.S., however China will still be able to sell Barite to other markets at a higher price. Likely, the party that will be hurt the most by this action are U.S. energy service companies. Barite mines in the U.S. have been substantially depleted and are inadequate in quality and production to support the booming U.S. oil and gas renaissance our country currently enjoys. Supply chain disruptions could slow production, costing jobs and give our global competitors like Russia and OPEC a leg up in a competitive worldwide market. PESA believes that these would both be negative and unintended consequences of the proposed action by USTR.
In conclusion, PESA supports the actions of USTR to aggressively target China for their unfair trade practices, however PESA urges USTR to carefully consider the impacts of imposed tariffs on the energy industry and to reconsider the scope of the proposal so that US energy manufacturing and service companies can remain competitive. By remaining competitive, the energy manufacturing sector can continue to support the 592,000 plus American workers who are directly employed in our sector, and to continue to power the American economy.
PESA looks forward to working with USTR to achieve your goals while protecting the integrity of our sector. Thank you for your time.