Jones Act Waivers & Obama’s Reelection
by Michael Hansen, President, Hawaii Shippers Council
The long predicted fight over the foreign flag carriage of crude oil from the U.S. Government’s Strategic Petroleum Reserve (SPR) on the U.S. Gulf Coast to refineries on the U.S. East Coast seems set to begin in earnest and may affect the outcome of the presidential election.
Currently, several market factors are causing the price of motor gasoline and diesel fuel to increase in the Northeastern U.S., which is perceived as detrimental for President Barack Obama’s reelection. Many of these factors could be mitigated by the Obama Administration issuing Jones Act waivers to allow foreign flag crude oil tankers (also known as crude carriers) to move the SPR crude oil to oil refineries on the U.S. East Coast. Although this issue had been forecast to develop in mid-Summer 2012, it is now expected to occur closer to the general election in November, increasing the political drama.
Hearings were held on June 27th by the U.S. House Committee on Transportation and Infrastructure, Subcommittee on U.S. Coast Guard and Maritime Transportation, to air issues related to the carriage of SPR crude oil in the event releases from the reserve became necessary later this year. The paramount Jones Act industry trade association, the American Maritime Partnership (AMP), previously known as the Maritime Cabotage Task Force, has been advocating against the use of foreign flag tankers since the Obama Administration issued waivers in 2011 during the Libyan crisis. And, another Jones Act industry trade association, The American Waterway Operators, gave testimony at the hearing on behalf of the AMP opposing the use of foreign flag tankers to transport SPR oil and stating that there is sufficient Jones Act lift capacity to handle the requirements.
Today Congressman Elijah Cummings (D-GA), the ranking member of the House Transportation and Infrastructure Committee, wrote to “President Obama urging him to honor existing law regarding the use of Jones Act-qualified vessels if oil should be released from the U.S. Strategic Petroleum Reserve” as reported by the Marine Log, a Jones Act industry publication.
The practical problem for the U.S. Government and the Jones Act maritime industry is that all the Jones Act crude carriers are fully employed on long term contracts to transport Alaska North Slope (ANS) crude oil from the southern terminus of the Trans Alaska Pipeline System (TAPS) at Valdez, Alaska, to the U.S. West Coast. Although they don’t have the ships to carry the SPR crude, the Jones Act industry is deceptively maintaining that they can accomplish the task with tank barges constructed for the carriage of fuel oil in smaller parcels, which would make the exercise infeasible for the East Coast refineries. And, the Jones Act industry is demanding that the Government offer SPR crude oil shipments in smaller consignments than the economical ship load quantities of around 500,000 barrels per shipment to accommodate their Jones Act tank barges.
As Reuters reported on March 12th, “Waivers would dramatically increase the number of tankers that could ship surplus fuel from the Gulf Coast to the eastern seaboard, lowering transport costs and creating incentives to build up gasoline stocks ahead of the summer driving season and keep prices in check. Without the waivers, however, the U.S. Northeast -- another plank of support for Obama that includes coveted swing state Pennsylvania -- may face an unprecedented shortage of gasoline due to the closure of half of regional refineries by mid-year.”
The U.S. maritime unions and shipowners are some of the Democrats and President Obama’s strongest supporters as they wish to defend every aspect of the Jones Act and perceive that the Democratic Party is the party that will do that. The lead maritime union organization is the Maritime Trades Department AFL-CIO and they operate through local port councils including the Hawaii Ports Maritime Council.
At the end of the day, President Obama will have to choose between his maritime union and industry supporters, by not issuing waivers for SPR oil and take his chances with the market forces affecting the price of petroleum products on the U.S. East Coast during a political year, or issue waivers to improve his reelection prospects and thereby angering his maritime supporters. It will be interesting to see what the President ultimately does.
The Hawaii Shippers Council (HSC) is a business league organization incorporated in 1997 to represent cargo interests – known as “shippers” – who tender their goods for shipment with the ocean carriers operating in the Hawaii trade.
Marine Log: Cummings urges Obama to support Jones Act in SPR draw down