Like many in the oil industry, Mike Mullen has added an item to his morning routine — calling steel suppliers to check their inventories.
As fabrication business manager at Texas Oilfield Fabrication & Pipeline LLC's plant in south San Antonio, Mullen oversees production of the company's modular oil field equipment.
The 26 employees at Texas Oilfield Fabrication & Pipeline's Roosevelt Avenue plant make compressors, separators and flares that are mounted on skids and shipped on flatbed trailers to remote oil wells, where they can be assembled quickly in the field.
But with steel as its principal building material, the company and many others in the oil industry are trying to adapt to a 25 percent tariff on imported steel enacted by the Trump administration on June 1.
"We talk about the tariffs every day," Mullen told the Business Journal. "I talk to vendors every day. Some companies are stockpiling. They're buying surplus steel inventories."
Texas Oilfield Fabrication & Pipeline buys standard steel tanks made at Flozone Measurement Ltd.'s plant in the South Texas town of Odem. Valves, pipes and flanges that are added to them come from various vendors, while steel I-beams and other components come from the San Antonio office of Triple-S Steel Supply.
"We ask our customers if they want domestic steel or if they want foreign steel," Mullen said. "Right now, domestic is higher."
Triple-S keeps supplies of foreign and domestic steel. With I-beams sold on a per-foot basis and pipeline projects measured in miles, the national origin of steel can have a significant impact on a project's cost.
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"Some companies say no foreign steel, while others say no foreign steel from certain countries," Mullen said.
In the meantime, the tariffs have created other forms of volatility. Steel inventories at a supplier one day can be gone the next. And then there's prices.
"Vendors are [changing] prices up and down daily," Mullen said. "Before they were steady."
San Antonio-based energy holding company Group 42 bought Texas Oilfield Fabrication & Pipeline in May. Since then, the manufacturer has been branching into new sectors in the oil and natural gas industry and finding new customers outside Texas.
With customers such as BlackBrush Oil & Gas LP and EnerVest Ltd. in the Eagle Ford Shale and Apache Corp. and the EPIC Crude Oil Pipeline in the Permian Basin, Texas Oilfield Fabrication & Pipeline can still maintain improved purchasing power through volume.
And there are other ways to keep costs at bay. The company sells steel scraps from its Roosevelt Avenue plant to be recycled. And it is developing a leasing concept that will enable equipment to returned to the shop, where it can be cleaned, repurposed and shipped to a new location.
In the face of the tariffs, Texas Oilfield Fabrication & Pipeline Business Development Director Joseph Dorn has also made changes to company's customer contracts.
"Before, our prices were good for 30 days, and now we have had to cut that by more than half," Dorn said.
The company is not alone. A recent survey by the Federal Reserve Bank of Dallas shows that while manufacturing continues to expand in Texas, uncertainty and negative impacts from the tariffs remain sources of concern.
"We were able to increase our pricing due to tariffs on steel effective on June 1 but have purchased steel at the old pricing on most gauges through Sept. 30," one Dallas Fed survey participant wrote. "It seems like most volume steel users would have done the same. We are having a great year. Sales are up, and margins are up. We hope we have raised our prices enough to cover the higher-cost steel arriving in the fourth quarter."
Over the past few months, oil industry trade groups such as the Texas Oil & Gas Association, Texas Independent Producers & Royalty Owners Association and Texas Alliance of Energy Producers have issued statements and open letters condemning the tariffs. Texas Gov. Greg Abbott followed suit with an open letter arguing that imported steel and aluminum are vital to the oil and natural gas industry and the state's economy.
"If the new tariffs continue to drive up the cost of oil and gas production, America’s quest for global energy dominance could be significantly hindered," Abbott warned in his letter.