ESG uncertainty more challenging for Jones Act owners

Uncertainty around environmental regulations is a particular concern for Jones Act tanker owners because of the longer lifespan of their vessels and the "exorbitant" cost of building them, according to Sam Norton, chief executive of Jones Act tanker owner OSG.

In recent years, regulatory uncertainty has been a major talking point among shipowners who have been hesitant to invest in newbuild vessels when they do not know whether the vessels will be compliant with future regulations.

That is because the lifespan of a Jones Act tanker is roughly 30 years — as opposed to 20 years for an international-flagged tanker — so risk in investing in a retroactively non-compliant vessel is an especially big worry for owners of US-flagged ships, Norton said today at the Capital Link New York Maritime Forum.

And because Jones Act ships can only be constructed at US shipyards, they cost much more to build than international-flagged ships, which Norton said creates additional risk for Jones Act owners. A Jones Act medium range (MR) tanker newbuild currently costs around $200mn, compared with $45mn for an international-flagged MR, according to a broker.

Norton said that investing in newbuilds is especially risky for Jones Act owner because long-term intra-US export demand is more uncertain than the international demand.

"Thirty years from now, it could well be that the demand for fuel transportation coastwise in the United States is radically reduced," Norton said, "And you face obsolescence risk or stranded-asset risks that given the size of the investments for newbuild tankers are considerable."

By Michael Connolly