By Irina Slav
The president of the United States may remove a 1920 piece of legislation that bans any non-U.S. vessels from moving any cargo between two U.S. ports. The reason: an imbalance between natural gas supply and demand in some parts of the country, especially in the Northeast and in Puerto Rico.
Bloomberg reported this week, citing unnamed sources, that Donald Trump had discussed the possibility of canceling the Merchant Marine Act from 1920 with industry insiders and other stakeholders in response to pressure from the Puerto Rican government and the energy industry. However, officials in his administration are divided.
What is the Merchant Marine Act? Also called the Jones Act, the legislation seeks to protect U.S. shipbuilders, owners, and crews by stipulating, as per Investopedia, that “goods shipped between U.S. ports” will be “transported on ships that are built, owned, and operated by United States citizens or permanent residents.”
However, this protection measure makes the shipments of goods to places such as Puerto Rico, Hawaii, and other non-continental U.S. territories a lot costlier than they could be otherwise. This is particularly troublesome for Puerto Rico, which is still struggling with the fallout from the devastation Hurricane Maria wreaked upon the island two years ago. Energy costs remain too high and increasing natural gas supplies from the U.S. could go a long way towards relieving some of the load.
With the Northeast United States, the problem is a lack of pipeline infrastructure, which has caused a spike in non-.U.S. LNG imports including from Russia; this is bound to have been seen as close to a personal offense by some in the Trump administration and in Congress.
The higher LNG imports seem to be a major weapon in the arsenal of those who want the Merchant Marine Act repealed. Indeed, with the fast rate at which U.S. natural gas production is growing, it is easy to see why LNG imports have rattled administration officials. To the supporters of the Jones Act repealment, the situation is probably reminiscent of Australia’s gas woes: the country exports so much of the fuel that there is a shortage on the domestic market.
However, opponents of the repeal are betting on the protection argument. According to them, as per Bloomberg’s sources, protecting the U.S. shipbuilding, ship-owning, and ship-operating industries is just as important today as it was when the act was first passed. Repealing the Jones Act would weaken the shipbuilding and related industries and—to make the point sharper—the jobs they create.
This camp’s lobby is so determined that a few officials from the administration have proposed to expand the reach of the Jones Act. This is interesting because it will affect the energy industry in a pretty adverse way.
According to Bloomberg sources, the idea is to ban all foreign vessels from transporting cargoes between U.S. ports and—the interesting part—from ports to offshore oil platforms. This proposal is not new. It was first floated a few years ago, but the strong reaction of the energy industry led to its shelving.
It seems that once again, President Trump is between a rock and a hard place trying to juggle the interests of two major industries without harming either one’s interests. It will be interesting to see whose lobby gains the upper hand.
By Irina Slav for Oilprice.com