OilPrice recently highlighted a century old law that limits oil and gas shipments known as the Jones Act (J.A.) may be having a negative impact on the American energy industry in light of COVID-19. The Jones Act regulates maritime commerce in the U.S. and “demands that vessels undertaking shipments between two U.S. ports be U.S.-built, U.S.- owned and U.S.-manned.”
The law was implemented to protect U.S. fleets after steep losses from World War I; however, the law actually limits oil and gas shipments within U.S. ports and encourages domestic producers to send shipments abroad.
The article writes:
“J.A. has been detrimental for the U.S. energy industry because it limits inter-state trade in oil products and LNG with the high costs for US-built vessels forcing producers to turn to less efficient forms of transportation oil products. The average cost of oil transport by huge oil tankers amounts to only US$5 to $8 per cubic meter ($0.02 to $0.03 per U.S. gallon), the second cheapest after pipeline transport. Noncontiguous states and territories, like Puerto Rico, Alaska, or Hawaii, are even more disadvantaged since no pipeline, rail, or truck transport of U.S. energy products can reach them, forcing them to rely on imports.”
Updating the Jones Act could encourage domestic shipments and take away unnecessary costs from disadvantaged East Coast states who often resort to relying on foreign imports. While pipelines are the preferred method of transporting natural gas and oil to consumers across the country, our energy infrastructure network and storage capacity are currently overwhelmed as global demand for crude oil has temporarily decreased during the pandemic.
The article also highlights the legislation is costing Texas plants three times as much to ship oil to east coast refineries compared to Canadian refineries, which should raise some red flags. Repealing J.A. would be a big step in the right direction for U.S. energy success.