Colonial outage spurs Jones Act bookings

Jones Act tanker and barge demand surged for US Atlantic coast-bound fuel movements after a ransomware attack shut the Colonial Pipeline system, the main artery carrying refined products from the US Gulf coast to New York Harbor.

Every available Jones Act vessel in the US Gulf coast that can carry refined products has been booked since the 7 May pipeline closure, either on spot or short-term charter voyages, one shipbroker said. Shipowners have capitalized on the heightened demand by raising freight rates on available vessels, he said.

"It's been crazy all weekend," the shipbroker said.

Energy traders have arranged product tankers to carry gasoline and diesel from the US Gulf coast to hubs on the US east coast, investment bank Evercore said in a research note.

Some of the bookings may yet fall through depending on the how quickly the pipeline restarts. Jones Act operator Overseas Shipholding Group (OSG) said it is receiving heightened chartering interest in its ships but none of that has yet translated into firm commitments.

"It is possible that some of these continuing inquiries could translate to firm contract fixtures within the next day or so" depending on further clarification on when the pipeline will fully restart, the company told Argus.

Unless the US government issues a waiver, Jones Act ships are the only waterborne vessels legally able to transport fuel between US ports.

The Jones Act fleet's immediately available capacity is limited because sustained weak demand stemming from the pandemic has caused shipowners to cut operating costs by idling vessels. OSG said last month that 33pc of the total Jones Act tanker and barge fleet had been laid up.

Vessel tracking shows at least five of tankers OSG has laid up remain idle. "A longer term disruption could stimulate sufficient near term demand to catalyze reactivation of one or more vessels," OSG said today.

Operators are looking to secure time charters for at least three months to bring those idled vessels out of layup, the shipbroker said.

Another outlet for the excess US Gulf coast fuel that would normally go through Colonial's pipeline may be floating storage exports on international tankers. Energy traders are showing increased interest in such contracts, according to shipbrokers, although no fixtures could be confirmed.

The spike in Jones Act demand may be short-lived since the pipeline expects to restart by the end of the week.

Fuel supply from Europe and the Middle East is also helping to fill the shortfall left by the outage of the 5,500-mile (8,851km) pipeline system that supplies 45pc of the US east coast diesel and gasoline market.

By Nicholas Watt