Jones Act Waiver Under Consideration to Bolster U.S. Oil Sector

[Muda69]

https://www.cato.org/blog/jones-act-waiver-being-considered-bolster-flagging-oil-sector

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The U.S. oil industry has certainly seen better days. Surging production by Russia and Saudi Arabia along with a sharp drop in demand due to the COVID-19 pandemic have pushed global oil benchmark prices to nearly $20 per barrel. The last time oil prices were that low Bill Clinton was president. Tomorrow the heads of several U.S. oil producers will meet with President Trump to make their case for some type of relief.

One of the measures reportedly under consideration is a temporary waiver of the Jones Act. It would be an excellent move. Such a waiver would cost taxpayers nothing while bolstering the oil sector’s flagging fortunes. It would also help realize Trump’s stated goals of placing America first, confronting the DC swamp, and deregulating an overburdened economy. If a fivefer is such a thing, this is it.

Passed in 1920, the Jones Act restricts the waterborne transportation of goods from one U.S. point to another to vessels that are U.S.-flagged, U.S.-built and at least 75 percent U.S.-owned and crewed. U.S.-built ships, however, are up to five times more expensive than those constructed abroad while the operating costs of U.S. ships are significantly higher than those under foreign flags. There also aren’t many of them. Of the tens of thousands of ships in the world, a mere 99 comply with the Jones Act’s restrictions. This combination of high costs and limited numbers makes for extremely high shipping rates.

Perhaps no one can better attest to this than U.S. energy companies. Jones Act shipping rates are so high that shipping a barrel of oil from Alaska to the Gulf Coast has been shown to cost three times more than shipping the same oil on a foreign‐flag ship to the U.S. Virgin Islands (which are exempt from the law) despite the latter voyage taking twice as long. Jones Act‐compliant ships are so expensive that oil can be shipped to East Coast refineries from Saudi Arabia for three times cheaper than sending it from the Gulf Coast.

As a result, Americans buy more Saudi oil and less U.S. oil, which must be instead sold to more distant customers. Last year California refineries even bought oil from as far away as Nigeria instead of Louisiana largely due to transportation costs. This is costly, inefficient, and hurts the bottom line of U.S. oil producers.

Even those who profit from the Jones Act admit to its high costs and distortionary effects. “Jones Act is more expensive. Everybody knows that,” said the CEO of Overseas Shipholding Group, which owns a number of Jones Act tankers, in 2017. “If there was not a Jones Act, then there probably would be more movements of crude oil from Texas to Philadelphia.”

If President Trump wants to place a needed shot in the arm of U.S. oil producers, a Jones Act waiver would be just the ticket. But to issue such a waiver the president would have to show that it is in the interest of national defense. Under U.S. law waivers on purely economic grounds are not allowed.

Fortunately, this should not be much of an obstacle. As the Wall Street Journal reported last month, at least one motive behind Russia’s decision to ramp up oil production is to harm U.S. shale oil producers. That would make this a geopolitical play by Moscow aimed at a vital U.S. industry. Reduced dependence on Saudi crude would also have obvious national security benefits. One doesn’t have to squint too hard to see the rationale for issuing a Jones Act waiver.

Unfortunately, while the logic for such a waiver might be impeccable, it also seems improbable. After all, we’ve been here before. Last spring President Trump was said to be leaning in favor of granting a Jones Act waiver that would have allowed New England and Puerto Rico to bring in shipments of U.S. liquefied natural gas using foreign‐flag ships (no ships capable of transporting bulk LNG exist in the small Jones Act fleet). Once word got out though, Jones Act supporters—among Washington’s most powerful special interests—who benefit from the law’s high costs and limited competition dispatched several senators to the White House to pressure the president against such a move. Trump folded, and the waiver was never issued.

But with the nation’s economy reeling, perhaps common sense will finally prevail.

Once can only hope.  The antiquated Jones Act is just one of many law/regulations that should be waived, then repealed entirely.

 

[DanteEstonia]

4 hours ago, Muda69 said:

https://www.cato.org/blog/jones-act-waiver-being-considered-bolster-flagging-oil-sector

Once can only hope.  The antiquated Jones Act is just one of many law/regulations that should be waived, then repealed entirely.

 

Why should the oil industry get welfare?

[Muda69]

58 minutes ago, DanteEstonia said:

Why should the oil industry get welfare?

The anti-competitive Jones Act isn't just about the oil industry, Dante. You need to educate yourself.  Why do you think all major Cruise Lines are headquartered outside of the U.S, yet the majority of their customers are U.S. citizens?  

[DanteEstonia]

3 hours ago, Muda69 said:

The anti-competitive Jones Act isn't just about the oil industry, Dante. You need to educate yourself.  Why do you think all major Cruise Lines are headquartered outside of the U.S, yet the majority of their customers are U.S. citizens?  

Because they are allowed to do that.

[Muda69]

7 hours ago, DanteEstonia said:

Because they are allowed to do that.

Again, educate yourself as to the economics behind the issue.

As a socialist you are all in when it comes to "fairness", right Dante?

Damage done to Puerto Rico by the Jones Act illustrates the need to repeal the law: https://thehill.com/blogs/congress-blog/politics/409752-damage-done-to-puerto-rico-by-the-jones-act-illustrates-the-need

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By now, you’d think the case for repeal of the protectionist Jones Act, a century-old relic from the Woodrow Wilson administration, would be so strong that we could close our laptops and declare the battle over. But we can’t, and it’s unfortunate because millions of Americans, including Puerto Ricans following Hurricane Maria last year, are paying hugely inflated prices for gasoline and other consumer products, thanks to a powerful maritime lobby.

In 1920, the year the League of Nations was established and American women gained the right to vote, Congress passed the Merchant Marine Act, also known as the Jones Act, ushering in a form of protectionism for America’s shipping industry and seafaring unions that remains on the books today. The Jones Act requires vessels carrying goods shipped in U.S. waters between U.S. ports to be U.S.-built, U.S.-registered, U.S.-owned and manned by crews, at least 75 percent of whom are U.S. citizens.

 

This means for example that oil shipped from ports in Texas and Louisiana to refineries on the East Coast must be carried by U.S.-flag tankers, which imposes significantly higher shipping costs on companies and results in higher crude oil prices and eventually higher prices at the pump for Americans. By being denied access to competitive international shipping rates, U.S. companies bear much higher shipping costs for many goods, which are passed on to consumers. For instance, repealing the Jones Act statute would reduce the cost of transporting petroleum products by vessel because foreign-flagged ships can currently transport oil for an estimated one-third of the cost of U.S. vessels. 

The Jones Act keeps otherwise uncompetitive elements of the American shipping industry afloat, but it carries a stiff price. In addition to driving up shipping costs, the protectionist policy stifles competition, and hampers U.S. energy production by making it more difficult and costly for producers to send crude oil to refineries.

Since cargoes must be shipped on so-called Jones Act tankers – and there are a limited number of such tankers, it’s easier for European exporters to cover supply shortfalls in the Northeast than petroleum sellers on the Gulf Coast who are saddled with Jones Act restrictions.

In fact, last winter, a shipment of high-priced liquefied natural gas (LNG) had to be imported from the Russian Arctic and unloaded at a terminal in Boston Harbor for use in home-heating and electricity production. If not for the Jones Act, New England could have been supplied by LNG coming from elsewhere in the Northeast or the Gulf Coast. Part of the problem is that New England has a shortage of gas pipeline capacity, requiring shipments to be made by tanker. But there are no Jones Act tankers capable of carrying LNG.

The shipment of Russian LNG, despite international sanctions against Russia and an abundance of U.S. natural gas that could have met New England’s needs, demonstrates how foreign energy companies are able to gain a competitive advantage by gaming the Jones Act.

These costly market distortions are what happens when the shipment of oil and gas and other consumer products is hampered by outdated regulations. The Jones Act has raised the cost of transporting oil and gas to all U.S. domestic ports, but especially ports in the noncontiguous regions of Hawaii and Puerto Rico, which was devastated by a natural disaster in the form of Hurricane Maria a year ago this month. Inflated shipping costs due to the Jones Act were a secondary and avoidable man-made disaster for Puerto Rico that added to the costs of recovery and significantly slowed the recovery time.

Because of this absurd, antiquated protectionism, it’s now twice as expensive to ship critical goods – fuel, food and building supplies, among other things – from the U.S. mainland to Puerto Rico, as it is to ship from any other foreign port in the world. Just the major damage done to Puerto Rico from the Jones Act is enough reason to tell us that now is the time – past due time – to repeal the anti-consumer Jones Act.

Are you a paid shill for the American shipping industry, Dante?  Because unless you are there is no even semi-logical basis for your to support this outdated, ridiculous legislation.

 

Edited April 3, 2020 by Muda69

[DanteEstonia]

9 hours ago, Muda69 said:

Again, educate yourself as to the economics behind the issue.

If those cruise liners weren't allowed to pick up passengers in the USA at all, they would not be in business.

I think the Jones Act should be expanded to include cruise liners. 

[swordfish]

From a friend.....

Remember all the @!#$ you would always hear from Democrats and those on the left about the evil oil companies?? How they were always gouging prices and hurting the American people all for their own profits and greed. They always believed that it was the oil companies that controlled prices of oil and gas at the pump, not the open market. Well then, why don't they just raise their prices to stay profitable??
Looks like another falsehood has been exposed. I hope the hell people remember this stuff later. The market dictates prices through supply and demand. It's simple economics. When it's left alone, it works pretty good. Don't ever count on the left to remember that though. Capitalism and basic economics is something they will never fully grasp as it's something totally foreign to a group of socialists.

With oil prices through the floor, and no place left to put the excess, I could see the US benefiting from a Jones Act repeal...... Let's use more US oil, not imported....

 

[DanteEstonia]

6 hours ago, swordfish said:

From a friend.....

Remember all the @!#$ you would always hear from Democrats and those on the left about the evil oil companies?? How they were always gouging prices and hurting the American people all for their own profits and greed. They always believed that it was the oil companies that controlled prices of oil and gas at the pump, not the open market. Well then, why don't they just raise their prices to stay profitable??
Looks like another falsehood has been exposed. I hope the hell people remember this stuff later. The market dictates prices through supply and demand. It's simple economics. When it's left alone, it works pretty good. Don't ever count on the left to remember that though. Capitalism and basic economics is something they will never fully grasp as it's something totally foreign to a group of socialists.

With oil prices through the floor, and no place left to put the excess, I could see the US benefiting from a Jones Act repeal...... Let's use more US oil, not imported....

 

And who controls the market? OPEC.

[Bobref]

3 hours ago, DanteEstonia said:

And who controls the market? OPEC.

😂🤣😅 How naive! Everyone knows that it’s the Trilateral Commission - secretly headed by the Pope - that runs things.

[swordfish]

17 hours ago, DanteEstonia said:

And who controls the market? OPEC.

OPEC +  They certainly want the control back from the US.......and are willing to sell at a loss to get it back......

https://www.investopedia.com/articles/investing/081315/opec-vs-us-who-controls-oil-prices.asp

OPEC vs. the United States: Who Controls Oil Prices?

Up until the middle of the 20th century, the United States of America (U.S.A) was the largest producer of oil and controlled oil prices. In the years to follow, OPEC controlled the oil markets and prices for most of the latter part of the 20th century. However, with the discovery of shale oil in the U.S.A and advances in drilling techniques, America has re-emerged as a top producer of oil. In this article, we explore the historical battle between OPEC and the United States of America to control oil prices and how world events have influenced that struggle.1

 

KEY TAKEAWAYS

• As of 2019, OPEC controlled roughly 75% of the world's total crude oil reserves and produced 42% of the world's total crude oil output.
• However, the U.S. was the world's largest oil-producing country in 2019 with more than 12 million barrels per day.
• Although OPEC still has the ability to drive prices, the U.S. has limited the cartel's pricing power by ramping up production whenever OPEC cuts its output.

United States

Oil was first commercially extracted and put to use in the United States of America. Consequently, pricing power for the fossil fuel lay with the U.S.A which was, at that time, the largest producer of oil in the world. In general, oil prices were volatile and high during the early years because economies of scale during extraction and refining (which mark the current extraction and drilling processes) were not present. 1For example, in the early 1860s, according to the Business Insider, the price per barrel of oil reached a peak of US $120 in today's terms, partly due to rising demand resulting from the U.S. civil war. The price fell by more than 60% over the next five years and rose by 50% during the next five years.2 

 

In 1901, the discovery of the Spindletop refinery in eastern Texas opened the floodgates of oil in the U.S. economy.3 It's estimated that 1,500 oil companies were chartered within a year of the discovery. Increased supply and the introduction of specialized pipelines helped further reduce the price of oil. 4The supply and demand for oil rose additionally with the discovery of oil in Persia (present-day Iran) in 1908 and Saudi Arabia during the 1930s.56 

 

By the mid-twentieth century, the use of oil in weaponry and the subsequent European coal shortage further ratcheted demand for oil, and prices came crashing down to $40 in today's terms.78 American reliance on imported oil began during the Vietnam war and the economic boom period of the 1950s and 1960s. In turn, this provided Arab countries and OPEC, which had been formed in 1960, with increased leverage to influence oil prices.1 

OPEC 

OPEC, or the Organization of the Petroleum Exporting Countries, was formed to negotiate matters concerning oil prices and production. As of April 2020, OPEC countries included the following 13 nations:9

 

• Algeria
• Angola
• Congo
• Equatorial Guinea
• Gabon
• Iran
• Iraq
• Kuwait
• Libya
• Nigeria
• Saudi Arabia
• United Arab Emirates
• Venezuela

 

The 1973 oil shock swung the pendulum in OPEC's favor. That year, in response to America's support for Israel during the Yom Kippur War, OPEC and Iran stopped oil supplies to the United States. The crisis had far-reaching effects on oil prices. 10

 

OPEC controls oil prices through its pricing-over-volume strategy. According to Foreign Affairs magazine, the oil embargo shifted the structure of the oil market from a buyer's to a seller's market. In the magazine's view, the oil market was earlier controlled by the Seven Sisters, or seven western oil companies, that operated a majority of the oil fields. Post-1973, however, the balance of power shifted towards the countries that comprise OPEC. According to them, “what the Americans import from the Persian Gulf is not so much the actual black liquid but its price.11” 

 

A number of world events have helped OPEC maintain control over oil prices. The fall of the Soviet Union in 1991 and the resulting economic tumult disrupted Russia's production for several years. 12The Asian financial crisis, which had several currency devaluations, had the opposite effect in that it reduced oil demand.13 In both instances, OPEC maintained a constant rate of oil production. As of 2019, OPEC controlled 74.9% of the world's total crude oil reserves and produced 42% of the world's total crude oil output.1415

 

OPEC+ came into existence in late 2016 as a means for the top oil exporting nations to exert control over the price of the precious commodity. Essentially, OPEC+ is an amalgamation of OPEC and high oil exporting non-OPEC nations like Russia and Kazakhstan.16 Combined, they control over 50 percent of global oil supplies and about 90 percent of proven oil reserves. OPEC+ remains influential due to three primary factors:

 

1. An absence of alternative sources equivalent to its dominant position
2. A lack of economically feasible alternatives to crude oil in the energy sector
3. OPEC, especially Saudi Arabia, has the world's lowest barrel production costs.

 

These advantages enable OPEC+ to have a wide-ranging influence over oil prices. Thus, when there is a glut of oil in the world, OPEC+ cuts back on its production quotas. When there is less oil, it increases oil prices to maintain stable levels of production. 17

 

OPEC vs. the United States—The Future

But OPEC's monopoly over oil prices seems to be in danger of slipping. The discovery of shale oil in North America has helped the U.S.A achieve near-record volumes of oil production. According to the Energy Information Administration (EIA), America's oil production was 12 million barrels per day (bpd) in 2019, making them the world's largest oil-producing country.1819 As of December 2019, U.S.A. was the world's top producer followed by Russia and Saudi Arabia. However, Saudi Arabia is still the global leader in exporting oil followed by Russia and Iraq. In fact, these three nations, all members of OPEC+, account for nearly 36% of the supply of oil for the rest of the world.

 

Shale is also gaining popularity beyond American shores. For example, China and Argentina have drilled more than 475 shale wells between them in the last few years. Other countries, such as Poland, Algeria, Australia, and Colombia, are also exploring shale formations. A viable alternative to OPEC+ could shift the power structure.

 

The Iran-U.S. nuclear debate could also impact oil production and supply in the future as further discord could provoke more sanctions to curtail production which would affect prices.20 Other factors that impact the price of oil include the budgets of Arab nations, which need high oil prices to fund government spending programs.21 Also, demand continues to increase from developing economies, such as China and India, further influencing prices in the face of constant production.2223

 

The dynamics of the oil economy are complex, and the oil price determination process goes beyond the simple market rules of demand and supply, though at its most primal level the market is the final arbiter of the price of oil. Theoretically, oil prices should be a function of supply and demand. When supply and demand increase, prices should drop and vice versa. But the reality is often quite different. Oil's status as the preferred source of energy has complicated its pricing. Demand and supply are only part of the complex equation that has generous elements of geopolitics and environmental concerns.

 

Regions that hold pricing power over oil control vital levers of the world's economy. The United States controlled oil prices for a majority of the previous century, only to cede it to the OPEC countries in the 1970s.1 Recent events, however, have helped to shift some of the pricing power back towards the United States and western oil companies, which led OPEC to form an alliance with Russia et al. to form OPEC+.

 

As oil prices rise, U.S. oil companies pump out more oil to capture higher profits which would limit OPEC's ability to influence the price of oil. Historically, OPEC's production cuts had devastating effects on global economies which has been somewhat diminished recently. Also, the U.S. is one of the world's top consumers of oil, and as production at home increases, there will be less demand for OPEC oil in the U.S.

 

But, it is important to note that, although the United States is the top producing nation, the top exporters are predominantly members of OPEC+, which means that they are still the key player in the oil price determination process. 24There may come a day when OPEC loses its clout but that day is not yet here.

Conclusion:  Anything the US can do to keep oil production at home will help us against OPEC.......Although SF paid 1.15 per gallon last night......Not gonna complain about that......

[DanteEstonia]

Or, we instead move towards biofuels and electric vehicles. That would be a lot smarter.

[gonzoron]

4 hours ago, swordfish said:

Although SF paid 1.15 per gallon last night.....

I paid $1.01 yesterday just south of Louisville. Too bad it wasn't my personal vehicle. Although I haven't driven that one in about a month.

[swordfish]

41 minutes ago, DanteEstonia said:

Or, we instead move towards biofuels and electric vehicles. That would be a lot smarter.

A buddy of mine has a Tesla he got last year.  A 2019 Model S.  We went out for a spin 2 weeks ago and he made me drive.  IMPRESSIVE.  Exactly what I thought it would be, and better.  I asked what his electric bill jumped and he avoided an outright answer, but agreed it jumped.  But I have to agree - It was a cool car, and I was very impressed, even scared when you put the pedal down.....No lag time, incredible acceleration - Very impressive.  He goes between Chicago, Detroit and Elkhart alot, and it is perfect for that since both destinations have adequate charging stations.  His only dislike is the lack of distance.  I explained if he tried to ease up on his acceleration rates (I know - hard to do cause it's so cool) maybe he could get better results.