Task force: Unshackle Hawaii from archaic shipping regulation

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Matson and Horizon monopolize Hawaii's shipping market because of the Jones Act Photo: Emily Metcalf
Matson and Horizon monopolize Hawaii's shipping market because of the Jones Act Photo: Emily Metcalf
Matson and Horizon monopolize Hawaii’s shipping market because of the Jones Act
Photo: Emily Metcalf

HONOLULU — Some 2,500 miles from any landmass, the Hawaiian islands are largely dependent on two small oil refineries for its energy needs.

But a 30-member task force convened by Gov. Neil Abercrombie to address energy security in Hawaii says the state needs an exemption from the 1920s-era Jones Act that requires all goods shipped within the United States be transported by American-made and American-manned ships.

The federal law, which impacts goods delivered to Hawaii, including oil, is hotly debated among politicians, business owners and organized labor unions in Hawaii.

Proponents maintain the law ensures job security and national security, while opponents support foreign competition, saying it will reduce the cost of goods by as much as 35 percent.

The Hawaii State Energy Office and two consultants, ICF International and Poten & Partners Inc., drafted the Hawaii Refinery Task Force Final Report released in April, which details Hawaii’s vulnerability should the state’s only refineries, Chevron Corp. and PAR Petroleum Corp., close.

Michael Hansen, president of the Hawaii Shippers Council, said the governor convened the task force after Tesoro Corp., closed its refinery in 2013. PAR Petroleum purchased and re-opened the refinery in September after it had been shut down for months, but the closure drove home the state’s energy vulnerability.

“Although the PAR Petroleum purchase seemingly saved the former Tesoro refinery from permanent closure, the combined capacity of the two refineries — approximately 150,000 barrels per day — is greater than local demand. The two refineries are collectively operating at significantly less than full capacity and the conventional wisdom is that both refineries cannot continue on this basis,” Hansen said.

Given the potential for future refinery closures, Hansen said the task force suggested a Jones Act exemption allowing foreign-flag tankers to carry petroleum cargoes in the domestic Hawaii trade would mitigate effects.

“Such an exemption would not only be valuable in the instance of refinery closures, but should also be actively pursued in the absence of a closure to lower the costs and extend the life of ongoing refinery operations to benefit consumers, taxpayers and businesses in the state,” Hansen said.

Because Hawaii imports fuel, the report said it’s important for Hawaii suppliers to have access to the broadest market for petroleum products.

“During the Tesoro transition period, virtually all products imported were foreign, primarily from Asia but also from as far away as Europe. Tesoro indicated that domestic supply was not competitive, in part due to Jones Act restrictions and cost versus foreign flag,” the report said.

From the late 1970s through the mid 2000s, the majority of the crude oil refined in Hawaii was from the Alaska North Slope. It arrived in the islands through the Trans-Alaska Pipeline System and was shipped from the tidewater at Valdez, Alaska, Hansen said. Today most of the crude oil refined in Hawaii is light sweet crudes imported primarily from southeast Asia.

The exemption also would more easily allow liquefied natural gas to be imported into Hawaii, for which Abercrombie has pushed.

Congress and President Obama must give Hawaii the exemption, but Hawaii’s congressional delegation, including U.S. Sens. Brian Schatz and Mazie Hirono and U.S. Reps. Colleen Hanabusa and Tulsi Gabbard — all Democrats — have been unwilling to push for it.

Shipping labor unions and shipping companies, which have control of the marketplace, also have fought against the exemption for Hawaii.

Abercrombie was a vocal advocate of the Jones Act while he served in Congress, but he said he supports the task force’s recommendations.

“This final report validates the importance of a sustained and reliable energy supply for the people of Hawaii,” Abercrombie said.

 

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6 COMMENTS

  1. Rep. Hanabusa said: "If the Jones Act were repealed, America would lose its reputation of having the best maritime workforce in the world, and our industrial base would suffer a setback they likely would never recover from." Hmm. Why would we lose our reputation? Did she mean that just like auto worker jobs ship building jobs would be "outsourced"? But unlike auto manufacturers, not so easy to open ship building factory in Mexico or China?

  2. Virtually every country in the world with an ocean coast has some sort of cabotage law like the Jones Act. Why should we allow foreign shipping lines, which are often state-owned, or heavily government subsidized, to compete in the domestic market, when U.S. shipping lines are still prohibited from doing so? For example, a U.S. shipping line cannot transport goods between the Chinese ports of Shanghai and Qingdao. That is reserved for Chinese shipping lines only.

    Fair is fair. If a Chinese shipping line wants to run a service between two U.S. ports, shouldn't a U.S. company have the opportunity to do the same between Chinese ports?

    A recent study by the GAO on the Puerto Rico market (Jones Act regulated) did not find the Act reduced competition or resulted in markedly higher retail costs.

    If Hawaii is given an exemption, foreign players that are heavily subsidized, will enter the market and offer less-than-compensatory rates to drive out the competition. Then they will own the market and jack up shipping rates to even higher levels than what exists today.

    Also, on a whim, they may cut or reduce services to our small market, as they pursue a global strategy that gives little attention to Hawaii's needs.

    Global shipping lines are a strange breed. The large ones are often family owned, or are owned in some way by a foreign government. For example, American President Lines, is 90 percent controlled by the Singapore government. U.S. Lines is owned by CMA CGM, a French line owned by the secretive Saade family.

    Do you think they will really care about the Hawaii market when they have other, more global, priorities?

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