• President Trump's Action Impacts Pipeline Operators by Requiring U.S.-Sourced Materials and Equipment for Pipeline Construction, Retrofits, Repairs, and Expansions
  • February 22, 2017 | Author: Elizabeth B. Herdes
  • Law Firm: Greenberg Traurig, LLP - Denver Office
  • On Jan. 24, 2017, President Trump took four executive actions that affect the oil and gas pipeline industry. In the first two, he directed the appropriate agencies to take expedited actions to the extent permitted by law to review and grant permits necessary to build the Keystone XL project and the Dakota Access pipeline. In a third action, he issued an executive order to streamline the permit and approval process for high priority infrastructure projects by directing the Chairman of the White House Council on Environmental Quality (CEQ) to designate “high priority” projects entitled to special stewarding through an expedited permitting process by the head of the relevant agency, and set up a reporting process directly to the president if the agency head fails to meet the schedule. These actions are likely to be viewed positively by the oil and gas industry.

    The fourth action taken by President Trump, however, may become more problematic for pipeline operators and contractors. The executive memorandum on the Construction of American Pipelines requires both materials and equipment used to build, retrofit, repair, or expand pipelines within the United States be produced in the United States. It directs the Secretary of Commerce, in consultation with all relevant agencies, to develop a plan within the next 180 days to use materials and equipment produced in the United States for “constructing new pipelines, retrofitting, repairing or expanding” pipelines within the United States.

    To meet the criteria of being “produced in the United States,” all manufacturing processes for the iron or steel in products - from melting to coating - must occur in the United States. Manufacturing products abroad using semi-finished steel produced in the United States is insufficient, as well as manufacturing products in the United States that are made from semi-finished steel or iron of foreign origin.

    How the plan developed by the Secretary will address the scope of this requirement is unclear. Taken literally, the Construction of American Pipeline memorandum suggests operators may have to determine the origin of production of a large amount of materials and equipment. For example, the memorandum suggests operators will be required to determine if a backhoe used to excavate the pipeline to inspect and repair an anomaly condition was built with U.S. produced parts. Will the plan require operators to identify, track, and document the origin of production of every part included in a piece of material and equipment used to build, retrofit, repair or expand a pipeline or will there be a different scope?

    The push to buy American products is not new. In fact, historically, there have been a plethora of such requirements. See, for example, the Buy American Act (41 U.S.C. §§ 8301-8305), the Trade Agreements Act (19 U.S.C. §§ 2501-2581); the Buy America Act (49 U.S.C. 5323(j) and 23 U.S.C. § 313) (which is different from the Buy American Act listed first), the Recovery Act (Pub. L. No. 111-5, § 1605), and the Berry Amendment (10 U.S.C. § 2533a). Historically, however, implementation of these provisions has proven difficult. In a global market, undertaking the process of identifying, tracking, and documenting the origin of the various parts that go into a piece of equipment or product can be a daunting task. As an example, the “Buy American” provisions of the American Recovery and Reinvestment Act of 2009 (Section 1605 of the so-called Obama Stimulus Package) - which prohibited the use of funds for construction of any public work funded unless all of the goods used in the project were produced in the United States - created such a need for waivers of the provision that the Department of Transportation created a webpage to help companies seek waivers of the provision.

    The implementation details of the Trump Executive Memorandum on Pipeline Construction will be crucial in determining the impact of the new approach on pipeline construction in the US.