The Jones Act is a Critical Energy Issue

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BY MICHAEL HANSEN – Failure of the Obama Administration to approve construction of the Keystone XL Pipeline is not the only transportation bottleneck negatively affecting domestic U.S. energy production, supplies and pricing.   Another critical impediment to energy transportation is the Jones Act.

A provocative article appeared on March 7th in the U.S. News and World Report blaming the Jones Act for causing East Coast refineries to close.  Gregg Laskoski, a petroleum analyst for, wrote, “The Jones Act is what prevents the U.S. energy industry from shipping Canadian crude from Texas up to the Northeast where it is badly needed.”  Laskoski explained East Coast refineries are closing because they are importing foreign crude oil based upon higher Brent pricing that costs $20 more per barrel than West Texas Intermediate (WTI).


On March 12th, Reuters’ Matthew Robinson looked at the pending North East fuel shortage at the product level and found “the U.S. Northeast ….. may face an unprecedented shortage of gasoline due to the closure of half of regional refineries by mid-year.”  The need is “to move product from the giant U.S. Gulf Coast refining hub — which currently is exporting record volumes of fuel to Latin America — to the East Coast, which last year imported roughly a fifth of its gasoline from Europe.”  Because European products are based upon higher Brent crude prices and refinery shutdowns are impacting supply there, this trading pattern is no longer sustainable.  A very straight forward solution would be for the Obama Administration to grant Jones Act waivers for Foreign-Flag product tankers to carry the excess products from the Gulf to the North East, but that puts the administration at odds with their union supporters.

The Wall Street Journal’s Mary Anastasia O’Grady reported on February 13th the Puerto Rico Governor Luis Fortuno needs Foreign-Built ships to support his economic plans.  She said, “If his plan to boost the island’s competitiveness by switching electricity generation from oil to natural gas is to succeed, he’s going to need relief from the pernicious 1920 Jones Act. It prohibits any ship not made in the U.S. from carrying cargo between U.S. ports.  There are no liquefied-natural-gas (LNG) tankers made in the U.S.  Unless Puerto Rico gets a Jones Act exemption, it cannot take advantage of the U.S. natural gas bonanza to make itself more competitive.”

Similarly, Sempra LNG contemplated developing natural gas reserves in Alaska for delivery to the U.S. West Coast and Hawaii, but could not put the ocean transportation component together for the project because U.S. shipyards do not build LNG carriers.  Kristen Nelson, Petroleum News Editor-in-Chief, wrote in January 2005, “Darcel Hulse, president of Sempra LNG, [said] ….. the United States has ‘lost the capability to compete in the world on LNG shipping and if you were to build in the United States an LNG carrier today, it would cost you at least three times as much as it would on the open market.’”  And, “Rigdon Boykin, development counsel….. said the port authority has visited some of the large shipyards in the United States, and was told that even if those yards started today to develop the capacity to build large LNG tankers, they wouldn’t have that capacity available until ‘long after this facility came online.’”

Both Presidents George W Bush and Barack H Obama resorted to temporary Jones Act waivers so Foreign-Flag crude tankers could transport the government’s crude oil from the Strategic Petroleum Reserve (SPR) to the refineries because no Jones Act tankers were available.  The Bush waiver occurred in September 2005 following Hurricane Katrina and Obama’s from July through September 2010 in response to the loss of Libyan oil on the world market.  The Jones Act lobby has reacted with a legislative proposal that would permanently limit the government’s ability to waive the Jones Act for transport of SPR crude oil, though they don’t say how the government would move the oil in the event of an emergency.

The Jones Act may now result in the closure of Tesoro’s Hawaii refinery.  From the early 1980’s through the mid-2000’s, Alaska North Slope (ANS) crude oil from the Prudhoe Bay fields provided over half of the crude oil refined in Hawaii.  Several years ago ANS deliveries to Barbers Point stopped as the older Trans-Alaska Pipeline (TAP)’s fleet of crude oil tankers were retired and replaced by new U.S.-Built double-hull tankers as required by the Oil Pollution Act of 1990 (OPA 90), which resulted from the EXXON VALDEZ accident in 1989.  The new double-hull TAPs replacement fleet did not include sufficient tankers to cover the Hawaii deliveries as the cost of building the replacement ships went far beyond budget and new ship delivery schedules were not met by the shipbuilding yards, resulting in curtailment of the orders.

Today, “about 75 percent of the crude oil processed in the Hawaii plant is light sweet crude oil, some of which comes from Indonesia, Australia and Malaysia, and is some of the highest-priced crude in the world,” said Liplow Oil Associates LLC of Houston, Texas, as reported by Viki Vaughan in San Antonio News Express on January 10th.  She further noted, Raymond James Associates, Houston, said, “It’s a long haul from anywhere to Hawaii.”  This as opposed to the lower pricing for ANS crude based on WTI and a much shorter haul from Valdez, Alaska, which is precluded by the Jones Act.

The two refineries at Barbers Point, Oahu Island, Hawaii, are operated by Chevron USA Inc. and the other by Tesoro Corporation.  Earlier this year, Tesoro announced that they have put their Barbers Point refinery up for sale, but have not said who the buyer might be or even if they have one.


Michael Hansen is the President of the Hawaii Shippers Council




Gregg Laskoski

U.S. News and World Report


Rescinding Jones Act First Step to Lowering Gas Prices


Matthew Robinson



Insight: Obama’s oil tanker dilemma: vex unions to win Pennsylvania?


Mary Anastasia O’Grady

Wall Street Journal


Fortuño’s Plan to Energize Puerto Rico


Kristen Nelson

Petroleum News


Alaska gas line port authority tackles Jones Act tanker issue


Holland & Knight


Hurricane Katrina – Jones Act waiver


Charles Papavizas

Winston & Strawn LLP


Obama Administration pressured on Jones Act waivers


Viki Vaughan

San Antonio Express News


Tesoro to put its Hawaiian refinery on auction block






  1. This article fails to mention that the reason the US cannot compete in ship building is that every major ship yard is subsidized by their government…. thus the 3x cost differential… furthermore the US maritime industry worth hundreds of billions of dollars and about 50 billion in tax revenue would be outsourced in a matter of years if the Jones Act was repealed… As of now china could easily subsidize ship building to the point where it puts every other ship builder out of business under this writers rationale…. if that was the case we would be at the whim of china for ship building and would have no control over the seas, and from there the laws of supply and demand would strangle hold the 16.2 trillion dollar in debt country….

    The demand allready exists, what inhibited ship building is constant talk of repealing the Jones Act… therefore shipping companies hold out on utilizing US shipbuilders in hope the Jones Act will be repealed…

    The martime industry is the last tangible industry the united states has… how has out sourcing work for any other sector of its economy….. the Jones ACt is about macro economics,…. not micro…

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