Column: The Jones Act waiver would have little effect on the island’s oil imports

There has been a big uproar in Hawaii over whether or not a one-year Jones Act waiver is necessary to ensure an adequate supply and stable price of petroleum products in the islands.

A waiver would allow foreign-flagged tankers to transport domestic oil shipments from other locations in the United States to Hawaii. Those advocating a waiver say it is the best way to compensate for the recent cutoff of Russian crude oil to the state.

Although the waiver proposals cover both crude oil and refined products, their primary focus is crude oil. The only oil refinery in the state is the PAR Hawaii Refining Facility located in Kapolei. Crude from the Russian Far East has made up 25-30% of PAR Hawaii’s feedstock in recent years.

Russia’s invasion of Ukraine on February 24 caused PAR Houston to announce on March 3 that it would no longer buy Russian crude and would only take delivery of previously arranged shipments. Subsequently, President Joe Biden’s March 8 executive order banned all U.S. imports of Russian oil, natural gas, and coal.

The Jones Act is the popular name for the body of federal domestic maritime legislation that prohibits, among other things, foreign vessels from engaging in US domestic commerce.

There is a sparingly used provision that allows the federal government to issue a discretionary administrative waiver under very restrictive conditions allowing foreign ships to carry domestic cargo.

Waivers can provide significant relief in an emergency due to the much greater availability of foreign vessels, including tankers, and their significantly lower freight costs than Jones Act shipping.

This statement is true because the international fleet of foreign-flagged ocean-going vessels is much larger (53,000 vessels) than the Jones Act fleet (96 vessels) and the capital cost of foreign-built vessels is significantly lower than ships built in the United States (ships cost four to five times more to build in the United States).

Prominent waiver advocates Keli’i Akina, president and CEO of the Grassroot Institute of Hawaii, and U.S. Representative for Hawaii Ed Case, each sent letters on March 3 and March 8, respectively, to Biden to request a one-year administrative waiver.

Despite the ensuing hype, there is no benefit in sourcing US crude oil transported by foreign-flagged tankers to Hawaii. Such a waiver would have no commercial value and would not be used by commercial interests. Thus, the question is debatable.

This can be understood by looking at the supply and price of crude in the market.

Since Biden’s inauguration in January 2021, the United States has become a net importer of crude oil, which means that the supply of locally produced crude is less than domestic demand and the shortfall is met by imports of crude oil. foreign crude. This supply shortfall virtually negates the ability to draw a potential supply of Hawaiian crude from a domestic surplus.

Since the domestic price of crude oil follows the international market price, there would be no material savings by buying domestic rather than foreign crude.

Perhaps more telling is the incompatibility of the one-year waiver proposed by the lawyers with current law.

Federal law allows waivers to be issued for an initial period of ten days (usually the “loading window”) and extended in 10-day increments for a total of 45 days for “any series of events.”

The discretionary waiver request is made by the commercial party requesting the transport (usually a freight owner such as PAR).

If a waiver is granted by Homeland Security, that party may charter an appropriate foreign-flagged vessel and proceed with the transaction.

PAR has not expressed interest in a waiver and has stated its intention to offset the Russian crude cut by resorting to other foreign sources.

Michael N. Hansen is Chairman of the Hawaii Shippers Council, representing freight owners and a shipping business consultant.