Will Trump waive the Jones Act for domestic LNG shipments?

by Michael Hansen, Hawaii Shippers’ Council, April 23, 2019

Bloomberg published on April 23, 2019, a news article, “Trump considering waiving Jones Act mandate for natural gas, sources say,” reporting that the President is considering a 10-year waiver of the Jones Act for the domestic transportation of liquefied natural gas (LNG).

The Jones Act – the commonly used reference to Section 27 of the Merchant Marine Act of 1920 – requires that vessels be built and registered in the U.S. and largely owned and crewed by U.S. citizens to transport cargo by water. However, there are no LNG carriers -- highly specialized tankers to carry LNG at minus 260 degrees Fahrenheit – in the domestic Jones Act fleet of 99 coastwise eligible seagoing self-propelled ships of 1,000 gross tons and over.  The last large seagoing LNG carrier built in the U.S. was delivered in 1980 for employment in the foreign trade.

The original request for a ten-year Jones Act waiver for LNG carriers was from Governor Ricardo Rossello of Puerto Rico so that the Commonwealth could bring in LNG from the U.S. Gulf Coast instead of importing it from more expensive foreign sources most prominently Trinidad. The ten year period was needed to conclude the necessary contracts to secure economical supplies and transportation. Although the original request was specifically for Puerto Rico, its reported that the prospective waiver the President is contemplating would apply nationwide.

The proposal for a ten-year waiver is a new approach to administrative Jones Act waivers under the authorizing statute 46 USC § 501, “Waiver of navigation and vessel-inspection laws,” which was enacted in 1950 and last amended in 2008.  In the past, waivers for commercial purposes have been granted as a result of a national security event on a temporary short term basis allowing foreign ships to lift domestic cargoes, for shipment between defined U.S. places, and complete the loading, transportation and discharge of those cargoes all within a limited period of time. Presidents George W Bush, Barak H Obama and Donald J Trump all issued waivers of this kind.

Key excerpts from Bloomberg quote:

President Donald Trump is seriously considering waiving the requirement that only U.S. flagged vessels can move goods from American ports to Puerto Rico or energy-starved areas of the Northeast, according to people familiar with the deliberations.

The issue was debated during an Oval Office meeting on Monday, following requests from Puerto Rico and pressure from oil industry leaders to ease the nearly 100-year-old Jones Act requirements, according to three people. Although top administration officials are divided on the issue, Trump is now leaning in favor of some kind of waiver, said two of the people, who asked for anonymity to discuss the private discussions.

That divide was apparent during Monday’s White House meeting, where Jones Act supporters included Trump trade adviser Peter Navarro and Transportation Secretary Elaine Chao. Larry Kudlow, the director of the National Economic Council, pushed for waiving the Jones Act, three of the people said.

Trump faces increasing pressure to relax the shipping requirements. Puerto Rico is seeking a 10-year waiver to allow liquefied natural gas to be delivered to the island on foreign-flagged vessels.

And energy industry leaders have pressed for changes to facilitate natural gas and petroleum product shipments between U.S. states. Among them: billionaire oil man Harold Hamm, the chairman of Continental Resources Inc. and a former Trump energy adviser. In January, Hamm complained at a Houston energy conference that the U.S. has been forced to buy LNG from Russia because there are no Jones Act-compliant tankers to transport liquefied natural gas.

Oil industry leaders argue that the Jones Act restrictions undermine Trump’s American “energy dominance” agenda, by encouraging imports of foreign oil and gas despite abundant supplies inside the U.S. Russian LNG was delivered to Massachusetts last year to help supply consumers in the Northeast U.S. And inland oil refiners argue requirements to use U.S.-flagged vessels boost the costs of obtaining raw crude, effectively subsidizing foreign competitors.

Unlike short-term, emergency waivers, longer-term exemptions could pave the way for commercial contracts to supply natural gas. 

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SA: Possible Trump waiver to Jones Act watched closely