The Jones Act, an early 20th century law that restricts trade between U.S. ports to ships built, owned and flagged in the U.S., might not be having as great an effect on shipments of oil and oil-based products as some of the law's critics have suggested, a maritime law expert said Sunday on Platts Energy Week.
With the recent dramatic ramp-up in U.S. crude oil production, critics of the Jones Act complain that the law is outdated and should be amended or repealed. They say the act's restrictions have resulted in a glut of light sweet crude sitting in U.S. Gulf Coast ports, awaiting shipment to refineries on the East Coast.
But Charlie Papavizas, chair of Winston & Strawn law firm's maritime practice group, said it is too early to assess whether the provisions of the Jones Act would act as an impediment to shipments of oil and oil products between U.S. ports in the long term. "It's not clear that it's having any particular impact -- maybe over time, but not on the short-term basis," he said.
Papavizas also said it is not clear if the Jones Act will have any significant impact on long-term prices of gasoline in the U.S., although in the short term, shipping rates for passages between U.S. ports are at an historic high.
"The rates have certainly risen quite a bit on product tankers that can also carry crude oil," Papavizas said. This would indicate that there is a shortage of U.S. vessels that can legally make such trips between U.S. ports.
"But if you talk to supporters of the law, they would indicate that there are plenty of vessels and there are plenty of vessels being constructed, so that over time the capacity will be there," he said.
While the Jones Act has been criticized throughout its life as an impediment to free trade, shippers of energy products are finding ways to get around the strict restrictions of the law, Papvizas said.
"The Jones Act only applies to movements between ports in the U.S. So for a movement from the Gulf of Mexico to Canada, you can use a foreign vessel. The Jones Act does not apply," he said.
Shippers are increasingly moving crude to a refinery in Canada, where it can be converted into gasoline and transported back into the U.S., with all the transport taking place aboard foreign-owned vessels, Papvizas explained. A recent ruling by the U.S. Customs Service and Border Protection has also made it legal to do the same with refineries in the Bahamas, he said, adding that it remains to be seen whether a lot of volume that will go that route.
