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The Biden Administration is considering a range of options to address the lack of diesel supplies and the cost of diesel in the United States, and in particular the Northeast. Some energy companies have suggested a waiver of the Jones Act would help the situation by reducing the price of diesel or improving inventory levels in the Northeast. In truth, global market dynamics – particularly the ability of energy companies to earn significant profits by exporting diesel overseas rather than supplying it to the Northeast United States – are the reason for the U.S. diesel fuel shortage. Waivers to the Jones Act will not generate cost savings for American consumers.
Major oil companies, refiners, and commodity traders are currently exporting diesel and other refined products because sending diesel overseas is profitable. Large oil companies, along with oil traders and refiners, are selling their commodities to locations willing to pay the most money for the product, including through exports.
As of October 27, total petroleum exports reached 11.4 million barrels a day, with exports of gasoline and diesel jumping to two-week highs, according to the U.S. Energy Information Administration (EIA). This is on top of record diesel exports rising 32 percent in March, April and May compared to 2021. At the same time, domestic fuel inventories, particularly in the Northeast, are at seasonal lows. This dynamic contributes to a disconnect for consumers as they pay more at the pump while the U.S. leads the world in energy production. In short, traders, refiners, oil companies and arbitrageurs are using market forces to earn larger profits by exporting their products abroad where they can command better prices, particularly in Europe, and consumers in the Northeast are paying the world price for these fuels.
Transport costs are also not the issue. The Colonial Pipeline is a refined product pipeline that moves gasoline, diesel, and jet fuel from the U.S. Gulf Coast to the U.S. East Coast. Its market had not been fully booked until recently, despite being a key source of energy supply for the Northeast. That means energy companies have been exporting diesel rather than using the most efficient and cost-effective means of transporting fuel to the Northeast from the Gulf to address the shortfall. The first fully booked cycle was set to deliver diesel in early November to the Northeast. These dynamics – not the cost or availability of Jones Act tankers and tank vessels – has led to low inventories in the Northeast.
So, would waiving the Jones Act help address these shortages? The Jones Act calls for all transport in U.S. coastal waters and between domestic ports to be conducted on U.S.-built, U.S.-crewed, and U.S.-flagged vessels. The Act bolsters our shipping fleet. In case of war, U.S.-flagged ships and U.S. merchant mariners are utilized to transport the U.S. military equipment. The Act not only ensures we have shipyards capable of building cargo-carrying vessel but also American crews who can man them and deliver vital cargoes wherever our nation needs them. Waivers for foreign-flag vessels to transport diesel to the Northeast would come at the expense of American companies and American workers and would not decrease costs to American consumers.
American vessels regularly transport diesel, gasoline and other refined products throughout the U.S., and the American Maritime industry has invested billions of dollars in vessels and other assets to support the transportation of energy cargoes, including to the Northeast. This includes approximately 120 coast tank barges that can carry 75,000 to 195,000 barrels of product and approximately 65 large tankers. In fact, some of these American vessels are currently delivering diesel cargoes from the Gulf Coast to the Northeast to shore up low diesel inventories in the region. Additional American vessels capable of delivering diesel are on charter, potentially to the very energy companies seeking waivers of the Jones Act because a waiver would add profit to their bottom line, as has been the case in previous waiver efforts.
Jones Act waivers are a soundbite and not a solution. The transportation costs, whether using a foreign-flag or a Jones Act vessel, are a tiny percentage of the overall cost of diesel. The impact of domestic shipping on the national average cost of fuel across the entire U.S. market is less than $0.01 per gallon of the overall cost. This is an infinitesimal amount for consumers.
Waivers would be harmful to jobs and our national security while padding the pockets of foreign energy traders who seek to leverage market forces and the geopolitical environment to squeeze every last dime of profit from the situation. Waiving the Jones Act will do nothing to help with diesel shortages and consumer costs, and the reflexive calls for waivers only serve weaken our nation and undermine American jobs.
Ku’uhaku Park is the President of the American Maritime Partnership, the voice of the U.S. domestic maritime industry.
This article originally appeared on www.realclearenergy.org and is republished with permission.
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