Jones Act Loophole Allows Puerto Rico to Finally Access American Natural Gas
Since 2016, American liquified natural gas (LNG) has been exported to at least 40 countries. One place it hasn’t been sent, however, is Puerto Rico. Shipping the fuel in bulk from the US mainland to the Caribbean island has been rendered impossible due to the Jones Act, the 1920 law that restricts domestic waterborne transportation to vessels that are built and registered in the United States.
The problem for Puerto Rico (as well as New England, and possibly Alaska and Hawaii too) is that none of the world’s more than 600 LNG tankers comply with the protectionist shipping law. As a result, LNG cannot be transported by water from US export terminals to those parts of the US that consume natural gas.
Until now.
Last week, shipping firm Crowley announced that a French-built LNG tanker it recently purchased will begin supplying American natural gas to the US territory. Named American Energy, it is allowed to operate thanks to a Jones Act loophole that permits foreign-built tankers to transport LNG to Puerto Rico (sorry, New England) provided they are American-flagged, crewed, owned, and—this is a big one—constructed before the measure was passed in October 1996.
After years of essentially being embargoed, the island can finally access American natural gas.
It’s about time—the de facto prohibition on purchasing US LNG has long been a costly headache for Puerto Rico. In 2019, the Puerto Rico Electric Power Authority’s (PREPA) CEO told Congress that the inability to source LNG from the US mainland meant hundreds of millions of dollars in lost savings (an amount later clarified at $300 million annually). This helps explain why Puerto Rico’s government in late 2018 requested a ten-year waiver of the Jones Act (ultimately denied) for LNG shipments.
With US LNG off-limits, Puerto Rico has been forced to obtain the fuel in recent years from more distant sources such as Spain, Oman, Norway, and Nigeria.
Although some of that may now be in the rearview mirror with attendant cost savings, Puerto Rico’s Jones Act loophole isn’t exactly an optimal solution.
For starters, the steam-powered American Energy is old (by necessity, to comply with the loophole’s provisions). Built in 1994, the vessel is one of only 13 actively trading LNG tankers globally age 30 or older. Even significantly younger LNG tankers are being sold for scrap due to their lack of competitiveness.
For added perspective, a 2013 Government Accountability Office report highlighted PREPA officials’ concern at the time about the efficiency and safety of using sixteen-year-old tankers. And now Puerto Rico must rely on a ship that turns 31 in August.
That American Energy is US-flagged will further reduce its benefit to Puerto Rico, as such ships are over four times costlier to operate than internationally flagged vessels.
Puerto Rico deserves to be served by efficient, modern vessels instead of a costly one that, in more normal circumstances, would be a prime candidate for scrapping.
But let’s focus on the bright side. Crowley’s LNG tanker demonstrates the gains that can be realized when Americans are provided even a partial reprieve from the Jones Act. In this case, merely exempting LNG shipments from the law’s requirement that vessels be domestically built has enabled energy to flow from the US mainland to Puerto Rico and provided employment for US mariners.
It’s a win-win.
Congress and the Trump administration should ponder what other efficient domestic supply chains can be unlocked when onerous maritime protectionism is pared back.
