Calls to waive the Jones Act have become a predictable political reflex during any time of energy shortage. Governors in Northeast states have already pulled the waiver page from their playbook as they scramble to shore up low diesel inventories.
The pro-waiver logic goes something like this: There is plenty of diesel being produced in the Gulf of Mexico, but the Jones Act makes it too expensive to ship to Northeast consumers. So, therefore, waiving the Jones Act would allow foreign flag ships to compete against American ships, which in turn would lower the price, enable suppliers to restock inventories on the East Coast, and deliver immediate relief to consumers.
Sounds logical? The facts say otherwise.
A combination of “perfect storm” factors is influencing diesel supply and price. First, U.S. petroleum companies are producing and exporting their products at a record pace. Recent EIA data show that total petroleum exports reached 11.7 million barrels per day, with diesel daily exports 50% higher than a year ago. Traders, refiners, oil companies and arbitrageurs are exporting products abroad where they can command better prices, particularly in Europe. Waiving the Jones Act would do nothing to defeat these market forces.
Meanwhile, the Northeast perennially suffers from a lack of refining capacity and other energy infrastructure. New England policymakers have declined for years to invest in refinery capacity as a matter of policy. There is inadequate storage capacity in New England, making it difficult for buyers to purchase cheaper fuel during the warm summer months and store it in anticipation of higher demand during the winter.
Perhaps most important of all, lawmakers and environmental activists have delayed or canceled new pipeline projects, exacerbating the reliance on foreign deliveries and aging petroleum infrastructure, making New Englanders more reliant on refined fuels transported from hundreds to thousands of miles away.
New England governors have been rolling the dice on the availability of low-cost fuels bought in the spot market from foreign oil and gas traders. But this gamble only pays off when spot market fuel is available, and at a cheap price. As the fuel supply runs short, these governors frantically seek to assign blame, including toward the Jones Act. However, waiving the Jones Act will do nothing to resolve either their inadequate infrastructure or lack of available supply.
The primary and the most cost-efficient mode of transportation of domestically produced petroleum product is the Colonial Pipeline, which runs from Gulf refineries up the Eastern Coast. Until recently, that pipeline had not been fully booked, given the high level of U.S. petroleum products being exported. Available pipeline space is a strong indication that transport cost has not been a factor in decisions being made about inventory levels, and it suspends logic to believe traders would choose the more expensive option of transporting products by ship if the Jones Act were to be waived.
Let’s set aside the fact that the Jones Act would do nothing in the Northeast to solve diesel shortages. Instead, waiving the Jones Act would come at the expense of American companies and workers.
American maritime companies have invested billions of dollars to support domestic transportation needs, including about 120 coastal tank barges that can carry 75,000 to 195,000 barrels of product, and 56 larger tank vessels. In fact, many of these vessels are currently delivering diesel inventories to the Northeast region.
Waivers also would do nothing to reduce consumer prices, as the cost of transporting fuel is an insignificant percentage of the overall cost consumers pay for the fuel. In fact, the potential impact of domestic shipping on the national average cost of fuel across the entire U.S. market is less than one penny per gallon of the overall cost. Moreover, in the past when waivers have been granted under the premise of moving fuel more inexpensively, foreign traders have pocketed any difference in transportation costs and consumers received no benefits.
There are similar structural policy matters that also affect the liquefied natural gas (LNG) supply in New England as outlined by the American Maritime Partnership in a Nov. 29 letter to New England governors. Waiving the Jones Act to allow foreign carriers that stand outside our laws and regulations would also fail to bring down the costs compared to standard deliveries of these critical energy cargoes from pipeline deliveries or cabotage-compliant maritime transportation. (Maritime cabotage refers to sea transport between two ports in the same country.)
Our fellow citizens in the Northeast and Americans across the country face significant energy and inflation problems as winter continues, and it is likely that fuel prices will remain high for the foreseeable future as trade is still disrupted by the war in Ukraine.
New England governors, policymakers and regulators need to evaluate the state of their reliance on the spot market and create long-term plans to shore up their supply chains. This can be re-evaluating how and when purchases are made, increasing local production, building more pipeline infrastructure and making reliable contracts.
Undermining 650,000 men and women of American maritime to the benefit of foreign energy traders is an illogical and, frankly, un-American policy response, particularly when doing so does nothing to solve the underlying problem. Instead, by working together we can solve these issues.
Samuel H. Norton is CEO of Overseas Shipholding Group Inc.