Exempt Hawaii from Jones Act to ensure continued oil imports

The Grassroot Institute of Hawaii says the 1920 law is a main reason Hawaii relies on Russia for more than a third of its crude oil supply

News Release from Grassroot Institute, February 23, 2022

HONOLULU, Feb. 22, 2022 >> State officials have known for years that Hawaii is vulnerable to an oil supply shock, and with tensions at a peak between the U.S. and Russia, it appears such an event could be imminent.

That is why, in the spirit of hoping for the best but preparing for the worst, the Grassroot Institute of Hawaii today called on Hawaii leaders to seek an exemption for Hawaii from the federal Jones Act, to ensure that Hawaii residents can continue to receive oil imports at a reasonable cost.

As institute research associate Jonathan Helton notes in a paper published today, “Hawaii needs Jones Act waiver for oil imports,” the 1920 maritime law is a main reason Hawaii obtains most of its oil from foreign sources, including more than a third from Russia.

“The state’s reliance on Russian oil puts the state at enormous economic risk,” said Helton. “Without Russian oil, Hawaii could diversify to other sources, but this would still come with a cost. The state could not replace 34% of its crude oil imports overnight.“

Russia is a big producer of low-sulfur or “sweet” crude, which Par Hawaii, Hawaii’s only oil refinery, says works best for Hawaiian Electric Co.’s electricity generation. But, said Helton, “it’s not like this particular kind of crude oil is rare. Low-sulfur crude made up 56% of U.S. crude oil production in 2018.”

Eric Wright, Par Hawaii president, said today that, “To date, there has been no impact on our crude supply. However, our traders continue to closely monitor this situation. If there is an interruption to crude supply patterns, we are confident we will be able to access other sources of crude oil for Hawaii’s fuel needs.“

But at what cost?

In 2014, the Hawaii Refinery Task Force predicted: “If access to foreign sources of petroleum products is reduced (e.g., due to Chinese growth, Korean peninsula instability, Asian natural disasters impacting supply sources), Hawaii may need to rely on a significant amount of domestic supply and be exposed to higher [Jones Act-related] freight costs. These costs will directly impact consumers.”

The task force recommended pursuing a Jones Act waiver for petroleum shipments to Hawaii, but realized back then that obtaining one would be very unlikely. 

Now, with U.S.-Russia tensions at the brink, Hawaii’s politicians might consider it more of a priority to ask for such a waiver. 

Just today, President Joe Biden said the U.S. would impose “full blocking” on two large Russian financial institutions and “comprehensive sanctions” on Russian debt, in response to what he is considering an “invasion” by Russia against neighboring Ukraine.

“That means we’ve cut off Russia’s government from Western finance,” Biden said. “It can no longer raise money from the West and cannot trade in its new debt on our markets or European markets either.”

Hawaii is already feeling the heat from these tensions, with gasoline prices soaring across the state. Now that the U.S. has imposed sanctions on Russia, things for Hawaii could get worse.

As the president said earlier this month: “I will not pretend this will be painless. There could be [an] impact on our energy prices.”

Biden did not specifically mention Hawaii, but he probably should have.

All things considered, the Jones Act has never been a good deal for Hawaii. Nor has it lived up to its alleged purpose of promoting U.S. national security and the domestic shipping industry.

On the latter count, America’s oceangoing Jones Act fleet has shrunk to fewer than 100 ships, and its shipyards capable of building such oceangoing vessels have similarly declined in number.

Regarding national security, it is hard to find a clearer example of failure than this: The law encourages Hawaii to buy oil from U.S. geopolitical rival Russia. 

And now, with relations between the U.S. and Russia potentially collapsing, it is very likely to wreak havoc on energy prices in the state.

Said Keli’i Akina, institute president and CEO. “Now is the time for all Hawaii lawmakers — from the county to congressional levels — to put aside their partisan differences and defend Hawaii from the economic damage that this conflict might inflict. We must free Hawaii from the shackles of the Jones Act that have limited our options and now threaten to knee-cap our already-struggling economy.”

Said Helton: “If Hawaii cannot obtain a general exemption from the Jones Act, our lawmakers at least might want to push for a waiver for energy imports.”