US fuel shortages add pressure to waive Jones Act

President Joe Biden's administration is coming under pressure to grant a blanket waiver of Jones Act shipping restrictions until the Colonial Pipeline fuel system restarts normal operations and begins to refill depleted fuel inventories across the eastern US.

Fuel retailers and refinery groups argue that waiving restrictions in the Jones Act could alleviate transportation bottlenecks caused by the shut down of the 2.5mn b/d Colonial system, whose trunkline has been closed since 7 May as a result of a ransomware hack. Foreign-flagged vessels cannot bring fuel inventories building up on the US Gulf coast to other US ports without a waiver from the Jones Act, which limits shipments to US-flagged and crewed vessels.

"A Jones Act waiver to open up marine shipping options, to get fuel from bulk refineries to the customer served by the Colonial Pipeline, is where President Biden's team can make a big difference," American Fuel and Petrochemical Manufacturers chief industry analyst Susan Grissom said today.

Traders have pre-emptively booked at least two international tankers for US Gulf coast loading with options for discharge on the US Atlantic coast.

Jones Act waivers have been granted in the past during times of crisis. This includes following 2017's Hurricane Harvey, which saw widespread damage to Gulf coast refineries and other infrastructure.

The industry push for a Jones Act waiver comes as gasoline tanks at retail stations across the southeastern US begin to run dry. A combination of panic buying by consumers and supply restrictions caused by the Colonial shutdown have created the risk of widespread fuel shortages, which could impede Biden's efforts to revive the economy.

Political risks of a waiver

But a blanket waiver risks cutting against Biden's efforts to provide support for rebuilding domestic industries and his support for the Jones Act. The anticipated short-term nature of the shutdown of the Colonial Pipeline could mean that even if a waiver is granted, its use is limited. It will fall to Biden and his team to evaluate the trade-offs of granting waivers.

"Jones Act waivers are inherently political decisions," law firm Winston & Strawn partner Charlie Papavizas said. "There is a standard in the law, it is a strict standard that is often used to deny waivers. But when there are disruptions, you tend to get waivers."

The US Transportation Department today said it completed a review of Jones Act vessels that are available to carry petroleum products, which it says will allow the government to consider waiver requests. But language by administration officials hint that any actions may be narrow. The government's waiver review will focus on "companies that demonstrate there is not sufficient capacity on Jones Act-qualified vessels to carry specific shipments of fuel," US transportation secretary Pete Buttigieg said.

Shipbuilders and operators of US-flagged vessels have generally raised concerns about blanket waivers of the century-old Jones Act, which supporters say help retain a domestic fleet that would be available during military operations or emergencies. Domestic maritime industry groups say they are not outright opposed to Jones Act waivers.

"The American Maritime Partnership does not object to a targeted approach to issuing waivers when there is a legitimate need and when such action does not reward those who would utilize foreign vessels to game the system at the expense of American jobs and national security," the group's president Mike Roberts said.

It is unclear if any companies have applied for waivers under the Jones Act. Buttigieg said he could not "speak to any specific waiver requests going on right now" but expected any review would proceed expeditiously. The US Department of Homeland Security, which is responsible for handling waiver requests, did not respond to a request for comment.
US shipping operators have laid up nearly one-third of the Jones Act fleet because of pandemic-related lower demand to cut costs. Shipping sources estimate that it could take weeks to get the ships ready to carry cargoes.

By Chris Knight