what an obvious anti Jones Act slant to this piece
By Anna Louie Sussman On August 20, 2014
NEW YORK, Aug 20 (Reuters) – As the first U.S. oil condensate exports head to Asia from the Gulf Coast, crude producers and refiners are exploring ways to get around a century-old law that makes it three times more expensive to ship by water between U.S. ports than to sail to a foreign port.
The Jones Act, originally passed to protect the U.S. maritime industry, restricts passage between U.S. ports to ships that are U.S.-built, U.S.-flagged and U.S.-crewed. If oil exports pick up pace while the Jones Act is left in place, U.S. crudes discount to Brent will likely narrow from its $8 average through 2014, while domestic refiners’ shipping costs will remain high, putting them at a disadvantage to foreign competitors.
“For heaven’s sake, if we’re going to take the crude and export it all around the world, please let us export it to the U.S. East Coast,” PBF Energy Inc. Executive Chairman Tom O’Malley said on a first quarter earnings call.
“We cannot do that if you can export crude oil to Europe at a cost of $2 a barrel and we have to use a Jones Act ship which cost us $6 or $7 a barrel.”
Refiners aren’t just moaning about the Jones Act’s costs. They have increasingly sought ways around the pricey ships, whose day rates have nearly doubled to more than $100,000 over the past five years as shale oil production has boomed.
Of the six-dozen-strong coastal fleet of Jones Act tankers and barges, between 25 and 35 percent now carry crude oil between production hubs in Texas and refineries in the Northeast or further east along the Gulf Coast; before 2013, the bulk of the fleet ferried refined products to Florida.
Transport costs run from $2 per barrel for the short trip between the western Gulf Coast and refining centers such as Port Arthur and Beaumont in Texas, or as much as $6 or $7 a barrel from Texas to the Northeast.
Even before rates rose due to tight supply, Jones Act ships were expensive. U.S. flag vessels cost about $21,000 per day to operate, or three times as much as a comparable foreign-flag ship, largely because their U.S. citizen crews command higher wages than foreign seafarers, according to a 2011 report by the U.S. Department of Transportation’s Maritime Administration.
On a tanker, crewing costs for U.S. mariners contribute around $11,500 per day, nearly six times the $2,000 of crewing costs on a foreign-flag ship.
The spike in day rates has led some refiners, such as Philadelphia Energy Solutions (PES), to invest in rail capacity to source domestic crude. Nationally, crude oil movements by rail have jumped 71 percent in 2013, compared to the previous year.
In late July, Delta Air Lines subsidiary Monroe Energy LLC struck a deal with privately-held midstream company Bridger LLC to supply 65,000 bpd of North Dakota Bakken crude to Monroe’s 185,000 bpd refinery in Trainer, Pennsylvania via rail and barge.
Delta also took its first steps into the Jones Act market, chartering the 330,000-barrel Seabulk Arctic for around $80,000 per day beginning in August, a comparatively cheap rate that results from its age, higher fuel consumption and the longer duration of the contract, according to market sources. That ship was previously chartered to Valero, which will now have no exposure to the Jones Act market.
Delta is also exploring constructing a five-mile pipeline to ship oil from a new crude-by-rail hub near Philadelphia to its Trainer refinery, a move that would allow it to scale back the use of Jones Act barges from the Eddystone rail terminal to the refinery, which adds about $1 per barrel.
PES chief executive officer Philip Rinaldi said in a February interview that his company sought to avoid water transport where possible, even for short distances like the 200-mile trip from Plains All American’s 140,000-bpd rail-to-barge terminal in Yorktown, Virginia, and called other refiners’ Jones Act contracts “expensive arrangements.”
Other energy companies have looked to workarounds, like a March ruling granted to Buckeye Partners LP from the U.S. Commerce Department’s Bureau of Industry and Security (BIS). It allows foreign-flagged ships to carry gasoline components to and from the BORCO storage terminal in the Bahamas, as long as they are blended and return to the U.S. as a “new and different product.”
Gary Heminger, CEO of Marathon Petroleum Corp, said in a July interview with Reuters that his company could hypothetically turn to foreign refineries to save on shipping costs.
“We take crude to the Gulf Coast, we put it on a foreign-flagged vessel, take it to a foreign refiner, because it’s cheaper, and then bring it back as refined product. You add up all the transportation costs, you can do that cheaper,” he said.
That’s already happening in Canada. Valero, Irving Oil and Trafigura have been sending three to six crude cargoes per month from the Gulf Coast to Canadian refineries, averaging about 57,000 bpd through June 2014, some of which returns to the U.S. East Coast as gasoline, according to Reuters’ Trade Flows data.
Previous attempts to repeal the Jones Act have all failed. Most recently, John McCain, a Republican senator from Arizona, was prevented from offering four Jones Act-related amendments to a 2012 energy bill by Harry Reid, a Nevada Democrat who’s the Senate majority leader.
This March, Republican members of the U.S. House of Representatives Duncan Hunter of California and Steve Scalise of Louisiana voiced their support for the Jones Act in a Washington Times opinion column, calling it a “commercial and public policy success” that protects jobs for shipbuilders and mariners.
Refiners are seeking to educate legislators about how it affects American consumers, by raising prices for waterborne commodities such as grains and oil.
Jeff Peck, chief lobbyist for a coalition of independent refiners, said crude oil exports and the Jones Act were “inextricably linked.” Extending the Jones Act requirement to crude oil exports could be one way to level the playing field if the export ban is lifted, he said.
Charles Drevna, president of the American Fuel and Petrochemical Manufacturers, a trade association representing refiners, said he has “had meetings with certain legislators” on why re-examining the Jones Act must be part of energy policy reform.
“The Jones Act has been like the crazy uncle you keep in the closet. So long as no one knows about it, no harm, no foul. But once you let him out and people start to interact with him, the family dynamic changes.”
[I]CRAZY UNCLE[SIZE=5] MY ASS!..FUCK THE BITCH WHO WROTE THIS UTTER BULLSHIT![/I]
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Hear, hear for the American Maritime Partnership…their well stated rebuttal to Reuters’ article
By Editorial On August 21, 2014
WASHINGTON – The American Maritime Partnership (AMP), the voice of the domestic American maritime industry, released the following statement and fact versus fiction analysis of a recent Reuters article on the Jones Act.
“There is zero pressure on the Jones Act in Congress. In fact, just the opposite — it enjoys rock solid support from both lawmakers and the Administration. Leaders from both sides of the aisle are showing their strong support for this law critical to America’s national and economic security. The domestic maritime industry is flourishing and stronger than ever. The most modern vessels in the world are being built in record numbers in U.S. shipyards all around the country, the industry is responding to the changing energy market caused by the shale oil revolution, and the U.S. maritime industry is growing and employing American workers as a result. It is an exciting time to be a part of this dynamic industry, and the nation is benefiting from the service we provide.”
FICTION: Shipping by Jones Act vessels is three times more expensive than foreign vessels.
FACT CHECK: This is an apples to oranges comparison. U.S.-flag ships operating in domestic trades are subject to all U.S. laws. Foreign flag ships operate in international trades are subject to the lax laws of flag of convenience countries like Liberia and Panama. The suggestion that a foreign flag ship could operate in the domestic trade without being subject to U.S. laws is a farce; it is highly unlikely Congress or the Executive Branch will permit foreign ships to operate in wholly domestic commerce without being subject to U.S. taxation, U.S. immigration, and a host of other U.S. laws.
The Government Accountability Office (GAO) has repeatedly debunked this myth:
• “Foreign carriers operating in the U.S. coastwise trade could be required to comply with other U.S. laws and regulations which could increase foreign carriers’ costs and may affect the rates they could charge.” http://www.gao.gov/assets/660/653046.pdf
FACT CHECK: The nation’s domestic energy production boom has caused costs of transport by rail and pipeline to skyrocket, while transport by maritime has remained not only competitive, but often times more economical.
• Bakken crude rail transport costs: $9/bbl to Cushing [OK]; $11-12/bbl to Eastern Canada;
$12/bbl to St. James [LA]; $17/bbl to U.S. East Coast; $9/bbl to U.S. West Coast. U.S. Gulf Coast to U.S. East Coast by U.S. flagged-vessels — $5-$6/bbl, comparable with U.S. pipeline rates (at $4/bbl). http://www.valero.com/InvestorRelations/Pages/EventsPresentations.aspx
• “We’ve seen dramatic increases in tank car rates over the last 18 months due to the unprecedented demand for the cars.”
• “Apart from the national security argument, some tanker analysts said that the high demand for Jones Act tankers is also supported by better economics and practicality when compared with pipelines.” http://www.cnss.com.cn/html/2014/updates_0516/150508.html
FACT CHECK: Refineries are experiencing record profits by refining cheap domestic crude and selling the gasoline, jet, diesel, and other refined products overseas at better margins.
• “This surge in supply also has lowered costs for refinery operators, simply because domestic crude is less expensive than imported oil. At the same time, Gulf Coast refineries have expanded over the past few years and can increase their volume, keeping prices even lower.” http://oilprice.com/Latest-Energy-News/World-News/Gas-Prices-Dont-Reflect-Record-Levels-Of-U.S.-Refinery-Output.html
• “Refiners are jumping on the opportunity to increase profits…” http://www.nasdaq.com/article/gas-
FACT CHECK: Over the past year, U.S. shipyards have entered into hundreds of contracts for new vessels, including the construction of state of the art tankers and barges to help America meet the growing demand from the nation’s surge in domestic energy production. Last year, the construction of inland tank barges reached an all-time high with 336 new vessels delivered, totaling more than 8.2 million barrels of capacity, and some 19 large tankers and articulated-tank barges with another combined 6.5 million barrels of capacity.
• “U.S. shipyards are the busiest in almost two decades as surging domestic energy production increases cargoes for the merchant fleet, according to the Department of Transportation.” http://www.bloomberg.com/news/2013-09-18/u-s-shipbuilding-is-highest-in-almost-20-years-on-shale-energy.html
• “Outside of pipelines, [maritime] is the best way to transport oil if you’re a coastal refiner.”
American Maritime Partnership is the voice of the U.S. domestic maritime industry, a pillar of our nation‘s economic, national, and homeland security. More than 40,000 American vessels built in American shipyards, crewed by American mariners, and owned by American companies, operate in our waters 24/7. This commerce sustains 478,000 American jobs, $28.95 billion in labor compensation, and more than $92.5 billion in annual economic output.