Jones Act and Russian Crude

Maritime News
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The cost of Jones Act transportation is a major factor in the use of Russian Oil, over domestic oil in areas not served by pipelines from US Production - US East Coast, and US West Coast - If when we sanction Russian Oil, look for Jones Act waivers to assist these refineries in getting US domestic Oil from the US Gulf.

There are other grades that can replace - but would look for some of these refiners to make the case, both political and economic for jones act waivers and running domestic crude oil.

quotes from linked article.

  • The East Coast (blue bubbles, ~50 Mb/d in total) tended to import a light sweet grade of crude oil, which is likely a CPC blend exported out of the Russian port of Novorossiysk on the Black Sea. The majority of CPC blend is produced in Kazakhstan around the Caspian Sea, and then transported to Novorossiysk by the CPC pipeline operated by a consortium of governments and companies. Given its primarily Kazakh origin, trading organizations might not avoid CPC blend, depending on how its Russian linkage is perceived. A replacement for this type of crude oil in a similar quality range could come from U.S. shale production from the Permian or Bakken, but shipping to PADD 1 would require Jones Act shipping or rail, which typically results in a higher cost to the refiner. Alternatively, certain international grades from West Africa, Middle East, or the North Sea would also work.

  • The West Coast (green bubbles, ~92 Mb/d in total) tended to import a light-medium grade (35 API) of crude oil that was in the 0.3%-0.6% sulfur range. This would likely be the Sokol or ESPO grades that are exported out of ports in eastern Russia. A U.S. grade that would fall in that quality range includes LLS out of the Gulf of Mexico but would require Jones Act shipping and a trip through the Panama Canal. Moving to international alternatives, there are crude oils from eastern Canada (Hibernia, Terranova), the Mediterranean/Middle East region (Es Sider, Syrian Light), or West Africa (Jubilee, Nemba) that may work as alternatives.

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I might favor Jones Act waivers, as long as the tankers waived in are reflagged US, US crewed, and pay a substantial waiver fee. The waiver fee would need to be high enough to maintain a level playing field with US built Jones Act tankers of similar age and capacity. The fee should be used to subsidize US shipbuilding.

Something similar could be done to allow other specialized foreign vessels that are not currently being built in significant numbers into the Jones Act trade, i.e., LNG ships, offshore wind installation vessels, oil rigs, etc.

Allowing the export of US crude on foreign flag tankers was a mistake. It should be stopped.

Another thing that should be stopped is allowing foreign flag shuttle tankers to load off supertankers inside the US EEZ and then deliver at US refineries.

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Great plan.
Now. what would be the incentive for anybody to offer their tanker (or any other type of vessels) for charter on those terms??

How many US-flagged VLCCs are available to fill the need right now?
Since “US-built” is not a requirement, there may be some older VLCCs that could be flagged in over time. (If enough subsidies were offered to compensate for extra costs)

BTW; Plenty of US owned VLCCs under foreign registers, but not so sure if the owners would be patriotic enough to reflag their ships w/o compensation.

Or to bring crude oil offshore for STS transfer to VLCCs?

PS> EEZ is not US territorial waters. As long as they don’t fish, or drill for oil while doing STS it is not breaking any laws:

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Awwwh, poor refiners … like the oil companies really deserve the sympathy of working schmucks who can barely afford to put billet wheels on their jacked up F350.

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Who cares? When the profit from moving the product is good enough then American yards will build the vessels needed. We don’t need to fill the bank accounts of foreign owners.

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Nice to have a plan with a long horizon, but the crisis is NOW.
PS> who knows it may still be there in 2030…>.
(Or whenever your fleet of tankers and other vessels are built and delivered from the yards)

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It doesn’t take long to build a fleet of barges or coastal tankers. If we can squander billion$ on aircraft carriers and useless LC fleets we can build useful commercial vessels that contribute more to national security than most defense contracts.

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Not sure you are understanding my point - nothing to do with refinery margins directly.

Right now we have competing interests where there is a call for eliminating Russian crude imports, and keep domestic production in the US. vs the benefactors of the Jones Act.

Secondly there is the unintended consequence of the Jones act that opens these attractive price arbitrations to export from one US port internationally, while importing the same product into another US port internationally.

The sole driver for these arbs are the Jones Act, which then is in some conflict with a drive for US independence.

Long term at least IMO the right answer is to stop the US build requirement - but maintain US Crew, etc.

But in the very short them - One very easy answer to significantly eliminating Russian crude imports, and keeping more domestic crude in the US would be a short term Jones Act Waiver.

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In general, I have no problem with flagging in foreign built vessels that are not currently being built at significant production levels with economies of scale by US shipyards.

US shipyards do not build any LNG ships, or VLCCs, or Ultra large container ships, drill rigs, heavy lift ships, or offshore wind construction vessels.

However, something must be done to create a fair level playing field for US companies that have already paid the very high prices US built vessels in the Jones Act trade. Given that there are less than 100 Jones Act qualified vessels trading that are over 1600 GRT, and that many of these vessels are quite old, this really isn’t a big or expensive problem for a major economy to solve.

It would be very simple for US companies to buy entire fleets of existing ships, just by buying publicly traded shipowning companies listed on the stock markets. US Government debt and equity financing could be provided to incentivize this.

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Help me understand why the US can’t build tankers & support US workers? We built the Polar tankers, the SEACOR ECO tankers, & the APT ECO tankers. Sure, the latter mentioned builds were Korean designed, but other than the design, it was American workers.

As a temporary fix, let’s re-flag as previously mentioned, and use US crews.

I just fail to understand a lack of maritime assets as a national policy. It seems pretty basic

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Those costs get passed on the “working schmucks” who need to fill their tanks to go to work.

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There are already many foreign built ships in the US merchant fleet in foreign trade.
Majority of them are flagged in by US subsidiaries of large foreign shipping companies.
The incentive to do so is the generous subsidise offered for vessels that has a military preparedness function.

I don’t think there are any VLCCs, VLOCs, VLGCs or ULCV in that category, since they do not fit any military purpose. The incentive to get Owners (US or foreign) to register such vessel under US flag is thus not there, as proven by the fact even US Owners of such vessels do not do so. Given the right incentive that MAY change,

To buy up shares in US or foreign owned companies with an attractive fleet of ships is of course possible, but to register the ships in the US without the right incentives is not a good business plan.

So, should US taxpayers pay subsidies as an incentive for shipowners to register their ships in the US? I don’t see that happening in the foreseeable future.

Reality; No political incentive to make such a proposal. (Not likely to win votes)

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If more Jones Act oil transport capacity is needed, if we stop buying Russian oil, I am just saying my preference is for no Jones Act waivers without reflagging US and employing US crew.

If the market demand is there for the additional Jones Act oil transport, then it will have to pay the charter rates necessary to make reflagging attractive. If cost of gasoline increases from $5.00 to $5.10 to pay those charter rates, so be it.

If it’s necessary for the government to buy or finance the purchase of existing foreign flag tankers, or a tanker company, to obtain additional Jones Act oil transport capacity, it could be done.

Personally, I question whether any additional Jones Act oil transport capacity is actually needed.

When it comes offshore wind, the easy way to jump start this huge new business for America, and American workers, is to buy foreign offshore wind construction companies, vessels and all, and allow the vessels to be reflagged into the Jones Act trade.

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This is a chicken/egg question. If the incredible capital burden was eliminated - would there be more investment, would prices come down to competitive, and would demand for intra-US port shipping increase.

Is the Jones Act build requirements the core reason there is not Jones Act shipping demand ??

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I don’t know much about the tanker or ATB business, but I’m under the impression that the change in policy to allow crude oil exports really hurt Jones Act oil transport. Didn’t that result in ATBs and tankers being laid up, and older units being scrapped?

When the US changed from being a net oil importer to a net oil exporter during the fracking boom, it may have made some sense to allow crude oil exports.

Following the OPEC and Russian oil price war that killed most US fracking, The US became a net oil importer again.

When the US becomes a net oil importer, it makes sense to ban crude exports again. This would keep the Jones Act vessels working, and perhaps stimulate some new building.

It seems obvious that we should have a dependable Jones Act tanker fleet with adequate spare capacity for emergencies.

The “extra” Jones Act tankers could be used in the shuttle tanker and nearby foreign trades during non-emergency conditions. This might require some subsidies, which would be a trivial expense compared to the national security and national economic benefits.

Again, I favor buying some foreign tankers and reflagging them into the Jones Act trade immediately, as long as it’s done in a way that is fair to existing Jones Act vessel operators.

As far as the Jones Act container trade goes, I think this is being held back by overly antiquated, inefficient and expensive longshoremen that make short sea shipping non-competitive with trucking.

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Just a few fact checks first:

“Following the OPEC and Russian oil price war that killed most US fracking, The US became a net oil importer again”

We are still fracking - and we are still a net exporter

“When the US becomes a net oil importer, it makes sense to ban crude exports again”

Unless we build a few more refineries ( not going to happen) - the only way the US is ever a net importer again is purely market driven, if some other supply of crude oil makes US domestic fracking un-economic.

It was a heyday for US tonnage for a short while - because there was no were near enough tonnage to transport domestic crude, in fact much/most of US domestic production was transported to refineries by trains.

Some more - the vast vast vast majority of US produced crude oil, is refined in US refineries. For the past 3-4 years we have been exporting about 2.5 - 3.0 Mbbls/day.

All crude oil is not the same, and refineries are designed and run more efficiently on a blend of some crudes. In addition, there are some US refineries owned by other countries ( Saudi, Mexico ) with their own crude supplies, and they tend to run their own crude. This is why we import some crude oil, but we are still exporting more than we import.

In general we import for different qualities - not because we need the quantity.

The 2.5 - 3.0 Mbbls a day we are exporting is, almost without question, the single best economic story in the US Economy in decades. It returns US dollars from over seas to the US, it dramatically reduces our balance of trade, has provided literally hundreds of thousands of jobs and related support industries.

The important thing is the Jones Act is, and has always been, a shipyard subsidy. The incremental cost of US crews vs foreign crews pales in comparison to the addition capital costs of building in the US. And it is empirically true that the Jones Act has failed in protecting and growing US commercial shipyards.

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It is not only US import of Russian crude oil and petroleum products that is affect by the ban on Russian owned ships:

Maybe they will have to go to a Russian port??

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Jones Act laws affect transporting oil or product between US ports. Imports can come in under any flag.

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This does not exist. Lightening vessels, yes. Shuttle tankers, no.

We don’t have any lightering vessels either of significant size.

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$$$$$$

Even with the IKEA build kit from Korea and a bunch of pieces shipped over, each ship Aker built was like $130 million. And that’s for a Handy size.

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