Trump Administration Considering a Temporary Jones Act Waiver for Oil Producers

President Trump is reportedly meeting with the leaders of several U.S. oil producers today to discuss some sort of temporary relief for the industry from the sharp drop in oil prices caused by the drop in demand due to COVID-19 pandemic. Although it isn’t completely clear what the administration has in mind, there are rumors that one of the proposals under consideration is a temporary waiver of the Jones Act for transporting oil.

For those who are not familiar with it, the Jones Act is a maritime law that mandates that only vessels that are built, owned, crewed, and flagged in the United States can participate in maritime shipping between domestic ports. As I explained when I first wrote about the Jones Act in 2017:

“The obvious economic effect of the Jones Act is that it excludes foreign ships from participating in the domestic maritime shipping market. Limiting the supply of domestic shippers increases the costs of shipping goods between domestic ports relative to what they would be in a more competitive market; these costs are then passed on to consumers.  A combination of factors cause these increased costs including the cost of producing a ship in an American shipyard (which is four to five times higher than the cost of an imported ship) as well as the increased operating costs of employing an American crew. The Congressional Research Service has shown that operating costs of American vessels bound to the Jones Act can be more than twice as high per day to comparable foreign ships. In 1999, the U.S. International Trade Commission reported the Jones Act costs $1.32 billion annually to American consumers. Areas like Alaska, Hawaii, Puerto Rico, and Guam disproportionally feel the effects of these costs because their geographic locations limit their ability to use alternative forms of transportation such as rail or freight to move goods.  Excluding foreign competition in the domestic maritime shipping market also reduces competition for services and grants American shipping companies increased monopoly power in the market. This allows domestic companies to charge higher prices and prevents them from adapting to better meet consumer demand.”

The U.S. energy industry is particularly affected by the Jones Act as the higher shipping costs associated with the law have placed some parts of the country in the position where importing oil is frequently a cheaper option than consuming the oil produced here in the U.S. Writing over at the Cato Institute, Colin Grabow explains the impact of the Jones Act on the U.S. energy industry:

“Jones Act shipping rates are so high that shipping a barrel of oil from Alaska to the Gulf Coast has been shown to cost three times more than shipping the same oil on a foreign‐​flagged ship to the U.S. Virgin Islands (which are exempt from the law) despite the latter voyage taking twice as long. Jones Act-compliant ships are so expensive that oil can be shipped to East Coast refineries from Saudi Arabia for three times cheaper than sending it from the Gulf Coast.

As a result, Americans buy more Saudi oil and less U.S. oil, which must be instead sold to more distant customers. Last year California refineries even bought oil from as far away as Nigeria instead of Louisiana largely due to transportation costs. This is costly, inefficient, and hurts the bottom line of U.S. oil producers. “

I would add to this that the Jones Act also helps solve some of the industry’s supply chain problems that are the result of the restricted construction of new pipelines in the U.S. Additionally, because of the extremely low price of oil, a temporary waiver may make it easier and less costly for oil producers to transport their product to storage facilities as they await a rebound in the price of oil.

As Americans do their best to fight through the economic impacts of the COVID-19 pandemic, it would behoove the administration to adopt simple changes in policy that can help American consumers and producers alike. A temporary Jones Act waiver for oil and gas is the perfect example of such a policy as it wouldn’t present any harm to U.S. consumers and would help U.S. oil and gas producers bring their products to market.