Trump Considering Waiving Jones Act for LNG Shipments to Puerto Rico, Northeast

Photo: Igor Grochev / Shutterstock

By Jennifer A. Dlouhy, Jenny Leonard and Jennifer Jacobs (Bloomberg) — President Donald Trump is seriously considering waiving the requirement that only U.S. flagged vessels can move goods from American ports to Puerto Rico or energy-starved areas of the Northeast, according to people familiar with the deliberations.

The issue was debated during an Oval Office meeting on Monday, following requests from Puerto Rico and pressure from oil industry leaders to ease the nearly 100-year-old Jones Act requirements, according to three people. Although top administration officials are divided on the issue, Trump is now leaning in favor of some kind of waiver, said two of the people, who asked for anonymity to discuss the private discussions.

The move — which would be fought by U.S shipbuilding interests and their allies on Capitol Hill — has been promoted as essential to lower the cost of energy in Puerto Rico and ease the flow of American natural gas to the U.S. Northeast, where there aren’t enough pipelines to deliver the product from Pennsylvania.

But even inside the Trump administration, there are fierce defenders of the Jones Act, a 1920 law requiring that vessels moving cargo between two U.S. ports be U.S.-built, -owned and -crewed. The law was originally designed to protect the domestic shipping industry and the country’s maritime might, and supporters argue that it’s just as essential today to ensure ships are made in the U.S. Any move to weaken or waive the requirements threatens the U.S. shipbuilding industry and the jobs tied to it, they argue.

Navarro, Chao

That divide was apparent during Monday’s White House meeting, where Jones Act supporters included Trump trade adviser Peter Navarro and Transportation Secretary Elaine Chao. Larry Kudlow, the director of the National Economic Council, pushed for waiving the Jones Act, three of the people said.

The White House press office did not respond to a request for comment.

Trump faces increasing pressure to relax the shipping requirements. Puerto Rico is seeking a 10-year waiver to allow liquefied natural gas to be delivered to the island on foreign-flagged vessels.

And energy industry leaders have pressed for changes to facilitate natural gas and petroleum product shipments between U.S. states. Among them: billionaire oil man Harold Hamm, the chairman of Continental Resources Inc. and a former Trump energy adviser. In January, Hamm complained at a Houston energy conference that the U.S. has been forced to buy LNG from Russia because there are no Jones Act-compliant tankers to transport liquefied natural gas.

American First

Kristin Thomas, a Continental Resources spokeswoman, said the U.S. Domestic Energy Producers Alliance, which Hamm founded, “is in favor of being able to ship U.S. LNG to U.S. ports,” although the group “has not waded into any issues related to Puerto Rico.”

Oil industry leaders argue that the Jones Act restrictions undermine Trump’s American “energy dominance” agenda, by encouraging imports of foreign oil and gas despite abundant supplies inside the U.S. Russian LNG was delivered to Massachusetts last year to help supply consumers in the Northeast U.S. And inland oil refiners argue requirements to use U.S.-flagged vessels boost the costs of obtaining raw crude, effectively subsidizing foreign competitors.

“The Jones Act is completely contrary to the president’s energy agenda, in large measure because it encourages the importation of energy — diesel from Europe, LNG from Russia — rather than the use of energy made in America and developed and refined by American workers,” said Mike McKenna, a Republican energy strategist. “If you’re in favor of the Jones Act, you’re in favor of damaging consumers and helping very specific interests line their pockets at consumers’ expense.”

Congressional Opposition

Trump has waived the requirements on a limited basis, granting Puerto Rico a temporary reprieve in 2017, after Hurricane Maria ravaged the island. Trump also briefly lifted Jones Act requirements to ensure gasoline, diesel and jet fuel could be moved among U.S. states more quickly after the storm.

Unlike short-term, emergency waivers, longer-term exemptions could pave the way for commercial contracts to supply natural gas.

Puerto Rico’s push for a 10-year waiver drew swift pushback from the bipartisan leaders of the House Transportation and Infrastructure Committee, who in February sent a letter to the Homeland Security Department arguing there was no justification for the move. Jones Act waivers are meant to be rare, limited only to cases where there is a national defense need, and there is “no valid national defense rationale” to waive the requirements for Puerto Rico, they said.

Matt Woodruff, chairman of the American Maritime Partnership, which defends the Jones Act, stressed that the move would counter Trump’s “America First” commitment. “American maritime is the quintessential ‘America First’ industry,” Woodruff said in a statement, “and we are confident President Trump, who has championed and supported our American shipyards, mariners and industrial base, would not start us down a path now that would cripple our national security.’’

© 2019 Bloomberg L.P

Related: The Numbers Are In: U.S. Maritime Workforce Grows to 650,000, Contributing $154 Billion Annually

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