Corrects attribution of comments in final two paragraphs.
The US Congress voted this week to make maritime shipping restrictions under the Jones Act harder to bypass.
A provision in the annual defense policy bill, which the Senate approved late last night, spells out more stringent procedural requirements for requesting and approving waivers from the Jones Act, a 105-year old law that requires shipments between US ports to be transported on US-flagged, US-crewed, and US-built ships. The House of Representatives already has approved the defense bill, and President Joe Biden is expected to sign it into law shortly.
The Jones Act has created a bifurcated freight market, leading to higher domestic marine transportation costs for commodities such as oil since foreign ships are not eligible for domestic shipments. The effects are even more acute for LNG, as none of the global LNG carrier fleet is US-flagged and LNG export terminals on the continental US have been unable to supply import facilities located in Puerto Rico and Massachusetts without waivers.
The new legislation raises the bar for issuing Jones Act waivers, by requiring that all requests be published and that no waiver can be issued earlier than 48 hours after a request has been made public. The administration is now required not only to certify that a waiver is justified for national defense reasons, but also to confirm that US-flagged vessels were unavailable prior to the request and to identify actions that could resolve the issue without issuing a waiver.
A further hurdle will be created for shippers, by prohibiting the issuance of Jones Act waivers for any ship that is already loaded with goods at the time when a request is made, if it is able to discharge cargo at a US port first — meaning only ships that are empty or unable to unload at a US port can get a waiver.
The latter provision is especially onerous and makes it impossible to use a waiver in an emergency, industry group National Energy & Fuels Institute president Sean Cota said. "This is the equivalent to requiring a fire truck that is already on the road and driving by a house fire to go back to the firehouse, unload, and request permission before it can go put the fire out."
The US oil industry earlier this year pitched waiving Jones Act requirements as a solution to short-term price spikes and low oil products inventories in the northeast US that the White House flagged as a problem. New England's largest utility, Eversource Energy, last month asked the White House for a Jones Act waiver to ensure that US-produced LNG can be delivered to the Boston-area import terminal during the winter heating season.
But the law has survived prior attempts at overhaul because of strong opposition from the US domestic maritime and shipbuilding industries.
And not everyone in the energy industry is convinced that overturning Jones Act is necessary.
The Jones Act should be examined, according to Massachusetts Energy Marketers Association president Michael Ferrante, but a waiver is not going to be a short-term solution for this winter.
A Jones Act waiver also adds uncertainty to the market, says Mark Romaine, chief operating officer of wholesale retail and fuel distributor Global Partners. Even with a waiver, it is still a global market where flows go to wherever the highest price is, he said.
