Refiners, marketers press for Jones Act changes

Published

9 years ago

August 28, 2014

Petroleum marketers and refiners are planning a substantial effort to get Congress to change the Jones Act, a nearly century-old law they claim is driving up motor fuel and heating oil prices and severely inhibiting the flow of crude oil between US ports amid the ongoing domestic oil boom.

The Jones Act was modified in Nigeria to become the Cabotage law.

But rather than repealing the law, due to the overwhelming support it has within the US shipbuilding industry and by members of Congress, the planned Capitol Hill lobbying efforts will be aimed at weakening the Jones Act. This could include new waivers to get the rising tide of light sweet crude from the Gulf of Mexico to East Coast refineries or modifying rules on the percentage of a vessels’ crew that must be US citizens.

“I’m not naive enough to think that Congress will repeal this thing,” said Charles Drevna, president of the American Fuel & Petrochemical Manufacturers, in an interview this week. “But, I think after 94-plus years, now it’s time to take a look at this thing and see how the Jones Act, … and the economic realities of 1920, fit in with the economic realities of 2014.”

The Jones Act, enacted as the Merchant Marine Act of 1920, requires all vessels shipping cargo between two US locations to be US built, crewed by at least 75% US citizens and be majority US owned. But these requirements have created dramatically higher charter rates and daily operating costs for US-flagged vessels, compelling oil shippers to move Gulf Coast crude to eastern Canada and other foreign ports rather than to US refineries in the Northeast, for example.

The Jones Act was originally put into place largely to help the US government to re-sell many of the cargo ships it built during World War I, according to a July 21 Congressional Research Service report on shipping US crude oil by water.

The costs of US-built tankers can be as much as four times the costs of those built in Korean, Chinese and Japanese shipyards, while the daily operating costs of a US-flagged ship, crewed by US citizens, is nearly four times that of a foreign-flag tanker, according to the US Transportation Department’s Maritime Administration.

In addition, charter rates for Jones Act-compliant tankers are averaging $75,000-$100,000/d, up from an average of $50,000/d two years earlier, according to the CRS report. Charter rates for foreign-flagged tankers are averaging $10,000/d for spot charters and $15,000/d for annual charters, the report said.

In an earnings call earlier this month, Thomas O’Malley, PBF Energy’s executive chairman, said the gap between moving crude on a US-flagged ship versus and foreign-flagged ship may be as much as $5/b. He said PBF, an independent petroleum refiner and supplier, was focused on moving crude by rail, rather than pay the premium for shipped by water.

“So when you look at Jones Act and just think about it clearly, Jones Act movement is somewhere between $6 and $7/b, while foreign flagged movement is, up to the East Coast, a little bit less than $2 a barrel,” he said, according to a transcript. “How can anybody take that delta up, I’m not quite sure, but we’re not considering Jones Act at the present time.”

Shipping crude from the Gulf Coast to other ports in the US can cost between $5-6/b, compared to the $2/b its costs to ship it on foreign-flag tankers from the Gulf to eastern Canada, according to the CRS report.

“For a Texas oil producer using a tanker with a capacity of 300,000 barrels, this rate difference amounts to receiving $1 million less for a shipment of oil to a US refinery than for a shipment to a more distant Canadian refinery,” the report said.

This year, more than twice as much Gulf Coast crude is being shipped to eastern Canada by water as is being shipped to US Northeast refineries, the report said.

“It’s cheaper to take it to a foreign country and bring it back,” said Drevna with AFPM. “It makes absolutely no sense.”

Drevna said his industry was focused on weakening the law’s requirements, such as the rule that it has to be crewed by at least 75% US citizens, a potential change which could lower transport costs or at least increase crew availability.

Rob Underwood, director of government relations with the Petroleum Marketers Association of America, called the Jones Act “outdated” and a “protectionist policy” but also conceded that repeal was unattainable considering its support within the US maritime industry.

He said instead, petroleum marketers were pushing for a US Government Accountability Office report on the impacts of the Jones Act. He said other changes may be possible, such as new allowances for waivers to ship the glut of light sweet crude in the Gulf to refineries in the mid-Atlantic.

Underwood said this lobbying effort was just beginning and likely would not fully begin until after the mid-term elections.

In the August 2011, due to the cutoff of oil from Libya, the Obama administration waived Jones Act requirements to move about 25 million barrels of Strategic Petroleum Reserve crude on foreign-flag tankers to refineries throughout the US.

Temporary Jones Act waivers have also been issue following Hurricanes Katrina and Rita in 2005 and superstorm Sandy in 2012.

Any changes to the Jones Act would also be a difficult task, considering congressional support for the law.

For example, the fiscal 2015 National Defense Authorization Act, which passed the House by a 325-98 vote but has yet to be voted on in the Senate, includes a congressional declaration in support of the Jones Act.

In April, shortly after being named chair of the Senate Energy and Natural Resources Committee, Senator Mary Landrieu, a Louisiana Democrat, held a Capitol Hill news conference highlighting the importance of the Jones Act to her state’s economy. The conference was notable because it was her first as chairman and because it was not motivated by any pending legislation, news event or apparent efforts at the time to weaken the law.

Senator Lisa Murkowski, an Alaska Republican, the committee’s ranking member and a leading proponent of loosening US restrictions on crude oil exports, backed the Jones Act following the release of a shipping industry-backed study in March on maritime jobs.

“The US maritime industry, supported by the Jones Act, provides vital services necessary for Alaska’s economy and quality of life,” said Murkowski, who is expected to become chairman of the energy committee if Republicans take control of the Senate in November’s mid-term elections

WAIVER CESSATION: Igbokwe urges NIMASA to evolve stronger collaboration with Ships owners

Published

4 years ago

April 13, 2019

Maritime First

…Stresses the need for timely disbursement of N44.6billion CVFF***

Highly revered Nigerian Maritime Lawyer, and Senior Advocate of Nigeria (SAN), Mike Igbokwe has urged the Nigeria Maritime Administration and safety Agency (NIMASA) to partner with ship owners and relevant association in the industry to evolving a more vibrant merchant shipping and cabotage trade regime.

Igbokwe gave the counsel during his paper presentation at the just concluded two-day stakeholders’ meeting on Cabotage waiver restrictions, organized by NIMASA.

“NIMASA and shipowners should develop merchant shipping including cabotage trade. A good start is to partner with the relevant associations in this field, such as the Nigeria Indigenous Shipowners Association (NISA), Shipowners Association of Nigeria (SOAN), Oil Trade Group & Maritime Trade Group of the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA).

“A cursory look at their vision, mission and objectives, show that they are willing to improve the maritime sector, not just for their members but for stakeholders in the maritime economy and the country”.

Adding that it is of utmost importance for NIMASA to have a through briefing and regular consultation with ships owners, in other to have insight on the challenges facing the ship owners.

“It is of utmost importance for NIMASA to have a thorough briefing and regular consultations with shipowners, to receive insight on the challenges they face, and how the Agency can assist in solving them and encouraging them to invest and participate in the maritime sector, for its development.

“NIMASA should see them as partners in progress because, if they do not invest in buying ships and registering them in Nigeria, there would be no Nigerian-owned ships in its Register and NIMASA would be unable to discharge its main objective.

The Maritime lawyer also urged NIMASA to disburse the Cabotage Vessel Financing Fund (CVFF)that currently stands at about N44.6 billion.

“Lest it be forgotten, what is on the lips of almost every shipowner, is the need to disburse the Cabotage Vessel Financing Fund (the CVFF’), which was established by the Coastal and Inland Shipping Act, 2003. It was established to promote the development of indigenous ship acquisition capacity, by providing financial assistance to Nigerian citizens and shipping companies wholly owned by Nigerian operating in the domestic coastal shipping, to purchase and maintain vessels and build shipping capacity.

“Research shows that this fund has grown to about N44.6billion; and that due to its non-disbursement, financial institutions have repossessed some vessels, resulting in a 43% reduction of the number of operational indigenous shipping companies in Nigeria, in the past few years.

“Without beating around the bush, to promote indigenous maritime development, prompt action must be taken by NIMASA to commence the disbursement of this Fund to qualified shipowners pursuant to the extant Cabotage Vessel Financing Fund (“CVFF”) Regulations.

“Indeed, as part of its statutory functions, NIMASA is to enforce and administer the provisions of the Cabotage Act 2003 and develop and implement policies and programmes which will facilitate the growth of local capacity in ownership, manning and construction of ships and other maritime infrastructure. Disbursing the CVFF is one of the ways NIMASA can fulfill this mandate.

“To assist in this task, there must be collaboration between NIMASA, financial institutions, the Minister of Transportation, as contained in the CVFF Regulations that are yet to be implemented”, the legal guru highlighted further.

He urged the agency to create the right environment for its stakeholders to build on and engender the needed capacities to fill the gaps; and ensure that steps are being taken to solve the challenges being faced by stakeholders.

“Lastly, which is the main reason why we are all here, cessation of ministerial waivers on some cabotage requirements, which I believe is worth applause in favour of NIMASA.

“This is because it appears that the readiness to obtain/grant waivers had made some of the vessels and their owners engaged in cabotage trade, to become complacent and indifferent in quickly ensuring that they updated their capacities, so as not to require the waivers.

“The cessation of waivers is a way of forcing the relevant stakeholders of the maritime sector, to find workable solutions within, for maritime development and fill the gaps in the local capacities in 100% Nigerian crewing, ship ownership, and ship building, that had necessitated the existence of the waivers since about 15 years ago, when the Cabotage Act came into being.

“However, NIMASA must ensure that the right environment is provided for its stakeholders to build and possess the needed capacities to fill the gaps; and ensure that steps are being taken to solve the challenges being faced by stakeholders. Or better still, that they are solved within the next 5 years of its intention to stop granting waivers”, he further explained.

Breaking News: The Funeral Rites of Matriarch C. Ogbeifun is Live

Published

5 years ago

March 7, 2019

Maritime First

The Burial Ceremony of Engr. Greg Ogbeifun’s mother is live. Watch on the website: www.maritimefirstnewspaper.com and on Youtube: Maritimefirst Newspaper.

Wind Farm Vessel Collision Leaves 15 Injured

Published

5 years ago

February 20, 2019

Maritime First

…As Valles Steamship Orders 112,000 dwt Tanker from South Korea***

A wind farm supply vessel and a cargo ship collided in the Baltic Sea on Tuesday leaving 15 injured.

The Cyprus-flagged 80-meter general cargo ship Raba collided with Denmark-flagged 31-meter wind farm supply vessel World Bora near Rügen Island, about three nautical miles off the coast of Hamburg.

Many of those injured were service engineers on the wind farm vessel, and 10 were seriously hurt.

They were headed to Iberdrola’s 350MW Wikinger wind farm. Nine of the people on board the World Bora were employees of Siemens Gamesa, two were employees of Iberdrola and four were crew.

The cause of the incident is not yet known, and no pollution has been reported.

After the collision, the two ships were able to proceed to Rügen under their own power, and the injured were then taken to hospital.

Lifeboat crews from the German Maritime Search and Rescue Service tended to them prior to their transport to hospital via ambulance and helicopter.

“Iberdrola wishes to thank the rescue services for their diligence and professionalism,” the company said in a statement.

In the meantime, the Hong Kong-based shipowner Valles Steamship has ordered a new 112,000 dwt crude oil tanker from South Korea’s Sumitomo Heavy Industries Marine & Engineering.

Sumitomo is to deliver the Aframax to Valles Steamship by the end of 2020, according to data provided by Asiasis.

The newbuild Aframax will join seven other Aframaxes in Valles Steamship’s fleet. Other ships operated by the company include Panamax bulkers and medium and long range product tankers.

The company’s most-recently delivered unit is the 114,426 dwt Aframax tanker Seagalaxy. The naming and delivery of the tanker took place in February 2019, at Namura Shipbuilding’s yard in Japan.

Maritime Executive with additional report from World Maritime News