Jones Act Waivers - SPR Release

[LonghornDave]

As I’m sure everyone is well aware of, President Obama authorized a 30 million barrel release from the U.S. Strategic Petroleum Reserve back in June. While the release itself is somewhat controversial, I would rather not talk about that. A current question though, is the waiver of the Jones Act for the transportation of the crude oil released.

For background, the Jones Act basically requires that U.S. ships be used for transportation between U.S. ports.

Merchant Marine Act of 1920 Wikipedia

@Wikipedia

Section 27, better known as the Jones Act, deals with cabotage (i.e., coastal shipping) and requires that all goods transported by water between U.S. ports be carried in U.S.-flag ships, constructed in the United States, owned by U.S. citizens, and crewed by U.S. citizens and U.S. permanent residents. The purpose of the law is to support the U.S. Maritime industry.

The Obama administration has provided numerous waivers of the Jones Act to allow foreign vessels to transport this crude. The following is a relevant article.

NYT: Oil Reserves Sidestep U.S. Vessels

@NYT

In its hurry to transport millions of barrels of oil from federal stockpiles to stabilize world oil prices earlier this summer, the Obama administration has repeatedly bypassed federal law by allowing nearly all the oil to move on foreign-owned vessels, drawing protests from domestic maritime operators.

@NYT

The move, which saved time and money for the oil companies that bought the oil, took potential work from more than 30 American cargo vessels and as many as 400 sailors, American ship owners said in recent days.

@NYT

To waive the Jones Act, the president must find that there is a national security emergency and that domestic carriers are not available in a timely manner. The cutoff of oil from Libya and a lack of large-capacity American tankers provided the legal rationale for circumventing the law.

@NYT

In an e-mailed statement, he said: “Due to the volumes requested by the purchasing companies and the focus on getting this oil to U.S. markets as quickly as possible, the Department of Homeland Security — working with the Maritime Administration and the Department of Energy — determined that individual Jones Act waivers were appropriate since the U.S. fleet had only small barges available, and the buyers bid on the basis of larger, more efficient tankers.”

@NYT

“The urgency of that timeline is ridiculous when you consider that today, two months after the sale of the oil, almost 10 million barrels of the 30 million barrels released hasn’t yet been transported,” he said.

U.S. Senator from Louisiana, Mary Landrieu has sent a letter to Obama criticizing the waivers. Bipartisan Letter Criticizes Waivers of Jones Act (8/26)

@Landrieu

We are writing to express our extreme disappointment in the Administration’s decision to use foreign vessels to transport crude oil within the United States during the ongoing Strategic Petroleum Reserve (SPR) drawdown. Use of foreign vessels with foreign seafarers appears directly contrary to the very purpose of the drawdown – to provide American jobs and help make the American economy stronger.

@Landrieu

Industry officials have identified American vessels ready and willing to transport oil. The Administration is fully aware that U.S. vessels are standing by as the Maritime Administration website includes a list of American vessels that have indicated their availability for this drawdown. We have enclosed an updated list of available U.S.-flagged vessels with this letter. Each vessel on the list exceeds the capacity requirements outlined in the Department of Energy’s (DOE) Notice of Sale of the SPR oil. While there is not enough American capacity to transport all of the oil at once, the Jones Act requires that American vessels be used first and that waivers only be granted when U.S. capacity is fully employed. In addition to being the law, that is also common sense in a fragile U.S. economy.

So, is this a big deal? I’m not big on these types of restrictions (Jones Act), but it seems that there is not a compelling national security reason to waive them in this case. We do have ships available that meet the DOE requirements, but it can be done easier and cheaper with foreign vessels. That does not seem to meet the requirements of a waiver.

[MOIDALIZE]

Assuming for the sake of argument that releasing the oil made a significant dent in gas prices…

I wouldn’t say it’s a big deal legally; Rep. Peter King of NY said it appeared that the formal legal steps needed to get the waiver had been met. Economically it may be a wash; some domestic shippers didn’t get the benefit of a protectionist law, but consumers nationwide benefited from lower gas prices. As for the politics, not a big deal, but it’s more evidence of Obama’s technocratic myopia. Taken alone, getting the oil out quickly is the right thing to do, but if the reason for doing so is economic, then taking business away from domestic shippers would appear to undermine that rationale. The administration is once again missing the forest for the trees.