Lifting crude oil export ban dealt blow to Jones Act tankers

Hellenic Shipping News

The 2015 repeal of a 40-year ban on the export of crude oil from the U.S. has left a sizable dent in the U.S. tanker industry, according to a U.S. watchdog agency.

A report released Friday by the Government Accountability Office (GAO) detailed how U.S. refineries – particularly those on the East Coast that had no access to cheaper transportation options such as pipelines – were left having to pay more to receive domestic crude oil on more expensive U.S.-flagged tankers and barges before the ban was repealed, when U.S. crude oil was selling at depressed prices relative to foreign crude.

Ships moving cargo between U.S. ports – known as Jones Act ships, named after a law requiring that such domestic cargo be carried on vessels that are not only U.S. flagged but U.S. built, U.S. owned and U.S. crewed as well – can cost almost five times as much to operate than foreign-flagged ships, due mainly to the cost of employing U.S. crews.

After the repeal of the ban, the price of domestic crude oil increased relative to the price of foreign crude oil for U.S refineries, which meant their demand for Jones Act tankers and barges decreased. U.S. crude shipped by Jones Act tankers and barges from the Gulf Coast to the East Coast fell by 57% in 2016, according to data from the U.S. Energy Information Administration. At the same time, imports of foreign crude oil to the East Coast rose by 35% in 2016, likely to replace the decline in shipments of domestic crude oil from the Gulf Coast, according to the GAO.

“Taken together, these two factors led to a decline in the demand for Jones Act tankers to transport U.S. crude oil from points within the United States in the years after the repeal of the ban,” the report noted.

Shipping companies that continue to operate Jones Act tankers to transport crude oil have been forced to significantly cut their shipping rates, according to those interviewed by GAO.

The effect of lifting the ban hit the U.S. shipbuilding sector as well, due to the Jones Act’s domestic build requirement. After the repeal, one of the two remaining U.S. shipyards capable of building Jones Act crude tankers saw a 90% drop in employment, according to one shipping industry representative.

In addition, “the boom in the construction of tankers to transport stranded domestic crude oil prior to the repeal of the export ban left shipping companies with excess shipping capacity, which has since been used to transport other products (such as refined products), salvaged for parts or idled,” according to the report.

One shipping representative interviewed said approximately 80% of the Jones Act fleet was built between 2007 and 2016. Because they have 30-year lifespans, “it is unlikely that there will be a need to build new tankers in this decade given the decrease in demand,” he said.

None of those interviewed said repealing the ban directly affected movement of refined petroleum products by Jones Act tankers and barges, according to GAO, because the repeal had limited effects on the production, export and import of domestic refined petroleum products.

“Refined products are still shipped by Jones Act tankers and barges between some points in the United States, such as refineries in Texas and Louisiana to consumers in Florida, due to a lack of pipelines connecting these states.”

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