Winter officially begins next week and New England finds itself disturbingly ill-prepared with limited supplies of fuel oil and restricted access to domestic natural gas. That an area of the country known for its bone-chilling temperatures finds itself in this predicament is due to a range of factors including sanctions on Russian energy, refinery closures, and insufficient pipeline capacity. None of that is likely to change anytime soon, and even if new refineries or pipelines were greenlighted their construction would come far too late to alleviate New England’s energy woes in the coming months. But that doesn’t mean policymakers are bereft of options. To encourage the transport of fuel to the region and reduce the possibility of a wintertime calamity Congress should act to exempt energy shipments from the outdated Jones Act.
Passed in 1920, the Jones Act restricts domestic shipping to vessels that are U.S.-flagged, built, owned, and crewed. But such ships are significantly more costly to build and operate than their international counterparts. They’re few in number too. Of the thousands of tanker ships that ply the high seas the U.S. Maritime Administration lists just 56 that comply with the law, only a subset of which can move fuel to New England (eleven of the 56 are large tankers designed for the transportation of Alaskan crude oil, one is dedicated to transporting molten sulfur, one was recently chartered by the U.S. military making it unavailable for commercial use, and another has been scrapped). The added expense and difficulty of utilizing such vessels has such distorting effects that it can make more sense to ship U.S. fuels abroad than to other parts of the United States.
A pair of recent news stories help illustrate this dynamic.
Noting “legal restrictions on the types of ships that can shuttle fuel between locations in the U.S.”—a clear euphemistic reference to the Jones Act—a November 16 Wall Street Journal article stated that such limitations add costs that encourages fuel to instead be exported overseas. As Citigroup’s global head of commodity research told the paper, “The Gulf Coast is not selling [diesel] to Philadelphia or New York. They’re selling it to Amsterdam and Rotterdam.”
Just the previous day, meanwhile, Reuters reported that five ships laden with fuel were headed to the Northeast United States from Rotterdam, the very place that U.S. fuel is being exported. Such absurd inefficiency would be almost comical if the results weren’t so damaging to the pocketbooks of New England consumers and the region’s energy security.
Indeed, the region finds itself in a precarious position.
Inventories of fuel oil, used by approximately 20 percent of New England households as a primary means of heating, are 50 percent below their 2017–2021 average. If the region is hit by a sustained cold snap—hardly a remote possibility—stocks could quickly dwindle. For perspective, during a 13-day period with below-average temperatures during the 2017–2018 winter over 80 million gallons of fuel oil were used for electricity generation in New England. On-site regional stocks in October stood at 92 million gallons.
“If it gets cold, the lights are going to go out,” warned the head of NEFI, a trade association representing wholesale and retail liquid heating fuel distributors, earlier this month. “There’s no way you can move enough energy via pipeline, trains, and trucks to make up what would be needed in vessels if it’s cold.”
While pipelines are the most efficient means of moving large volumes of fuel, their ability to move product from the Gulf Coast to the East Coast is described as “largely maxed out.” Marine transport would seem an obvious alternative, but tankers that comply with the Jones Act are already fully employed with little excess capacity. That doesn’t leave much margin of error if temperatures drop for a sustained period. The American Fuel and Petrochemical Manufacturers warns that while U.S. refineries produce sufficient volumes to keep the region supplied, “it’s possible high seasonal demands and Jones Act constraints [emphasis added] could cause temporary disruptions.”
As numerous industry participants and analysts have pointed out, the most straightforward way to alleviate such constraints would be to suspend the law or exempt the transport of energy products. That wouldn’t just benefit those that rely on home heating oil but also users of natural gas, which is the region’s dominant fuel for electricity production. While the Jones Act makes the transport of fuel oil to the region more difficult and expensive, it renders the purchase of liquefied natural gas (LNG) from domestic sources outright impossible due to the complete lack Jones Act-compliant LNG tankers.
New England governors, for their part, have expressed their interest in Jones Act waivers to meet the region’s energy needs. There are significant restrictions on the executive branch’s ability to waive the law, however, making it unclear whether this offers a viable option for relief. Given such uncertainty, it’s imperative that Congress act to ensure that nonsensical shipping restrictions don’t leave the region’s homes shivering. Fortunately, Sen. Angus King (I‑Maine) and Sen. Jeanne Shaheen (D‑New Hampshire) are reportedly crafting legislation that would expand the executive branch’s ability to waive the Jones Act to enable expanded shipments of energy supplies to New England.
To be clear, longer-term reforms such as the removal of obstacles to pipeline construction should be embraced to spare New England from the perpetual threat of insufficient energy supplies. But that’s for another day. Right now policymakers need to consider what levers they have at their immediate disposal to provide relief, and Jones Act relief is the most obvious and impactful candidate. Legislation to spare energy shipments from the protectionist law should be passed without delay.