In physics, there is no such thing as a perfect insulator.

And therefore, an LNG tanker may not make two consecutive stops at U.S. ports.

Confused? While the logic may be tough to follow, it’s absolutely rational according to the Jones Act, the 104-year old law that governs domestic shipping.

“It’s like a bad penny, it keeps showing up,” said Gary Kruse, managing director of research at Arbo, an analytical firm that specializes in government energy policy. “And it comes up in really weird contexts. People are like, ‘What, I can’t do that? For what reason?’”

The Jones Act: An Old Law on a Voyage to Nowhere
Gary Kruse, managing director of research, Arbo (Source: Arbo)

The 1920 Jones Act requires cargo shipped between U.S. ports to be moved on vessels that are U.S.-built, U.S.-owned and U.S.-crewed. In over a century of regulation by the U.S. Customs and Border Protection Agency (CPB), the rule has often come into conflict with the goals of the energy industry and its customers.

The Jones Act occasionally causes headlines when bottlenecks appear in times of emergency or when government regulations cause unusual situations. Few energy analysts or political commentators expect the law to change any time soon. As noted in a recent analysis by the libertarian Cato Institute, the opposition to the Jones Act tends to be dispersed and distracted, while its supporters are concentrated and passionate, defending a rule they say supports a vital industry and a way of life for thousands of U.S. citizens.

LNG spotlight

In November 2023, in a case involving an LNG tanker, the CBP ruled that a foreign-owned LNG cargo vessel could not pick up a partial load in one U.S. port and then fill up at another. CBP reviewed the scenario at the request of Reed Smith, a Houston-based law firm that specializes in business and government affairs.

“Foreign-owned LNG tanker” is a redundancy, as no Jones Act compliant LNG tankers currently exist, according to Reed Smith.

LNG tankers keep their cargo cool through refrigeration powered by the ship’s engines. When a ship comes into port, some of the engine power may be reduced. That causes a small amount of the LNG to vaporize, which is then vented to keep the tanker’s pressure at safe levels.

The released gas may waft onto shore, thus delivering cargo and violating the Jones Act, the CBP ruled.

“CBP noted in the ruling that the release of vapor at the second terminal is necessary for safety reasons but emphasized that the Jones Act does not contain any exception for safety considerations,” Alice Colarossi, a Reed Smith attorney, wrote in an analysis of the decision. Colarossi also noted the ruling could apply to LNG tankers at a single U.S. port going through warmup and cooldown operations.

Customs and Border Protection has dealt with LNG often in the past, as the writers of the Jones Act didn’t have to deal with cargo that could easily change into a different form of matter.

In 2002, the CBP ruled that regasification did not create a new and different product. Therefore, LNG could not be shipped from California to Mexico, turned into natural gas and piped back to the U.S.

The ruling was amended in January 2024 to make an exception for small transport ships that carry bunker fuel for ship propulsion.

“We expect to see more CBP rulings on the Jones Act compliance of LNG operations as LNG production and export activities are intensifying in the United States,” Colarossi wrote. 

The Jones Act: An Old Law on a Voyage to Nowhere

Politically, the country has been grappling with LNG and the Jones Act in far more public forums.

After large-scale LNG exports began in 2016, businesses and politicians in production areas began to lobby for an LNG exemption. In 2018, Texas Railroad Commissioner Wayne Christian sent an open letter to the U.S. Congress asking for a change to the current system.

“Many parts of the Northeastern United States are forced to import their natural gas from Russia instead of purchasing from domestic sources, like Texas,” Christian wrote. “Very much similar to the ban on crude oil exports, this is bad public policy for a number of reasons, but primarily because it increases our reliance on foreign sources of energy.”

Puerto Rico politicians spoke up at the same time, requesting a 10-year Jones Act waiver to deliver LNG. The territory is about a week’s journey by tanker from the U.S. Gulf Coast, but the majority of the territory’s LNG is provided from Trinidad and Tobago off the northern coast of South America, and Nigeria in Africa, according to the U.S. Energy Information Administration.

Trump had granted Puerto Rico a temporary reprieve from the Jones Act after Hurricane Maria devastated the island in 2017, but ultimately turned down both requests in 2019 after an intense lobbying effort by GOP representatives in Louisiana and other states with Jones Act-dependent industries.

“After talking to President Trump, I am confident that he realizes how important the Jones Act is to Louisiana’s maritime industry and that no changes will be made,” said Sen. John Kennedy (R-La.), according to Reuters. “It would be foolish to push aside those jobs in favor of foreign-made and foreign-crewed ships.”

In 2022, six New England governors requested an exemption from President Joe Biden’s administration. In the winter, LNG is considered a backup fuel for the region during extreme cold spells, but its usage is extremely limited.

“The Russian invasion of Ukraine has exacerbated the pricing of nearly all energy commodities which is directly impacting energy consumers in our respective states,” the letter read. “The increase in global liquified natural gas (LNG) pricing has been particularly acute—while global petroleum prices increased by 50 percent over the last year, global LNG prices have increased by almost 300 percent.”

The northeastern U.S. has one LNG import facility in Everett, Massachusetts, and it is scheduled for retirement in May. The Federal Energy Regulatory Commission warned as recently as November that shutting down the facility would threaten New England’s energy stability. The facility owner, Constellation Energy, listed the high cost of importing foreign LNG as one of the reasons the facility is no longer economically viable.

(A new customer, National Grid, came forward in February and requested a six-year supply deal through the terminal, meaning the facility may be able to stay open, Bloomberg reported.)

On Sept. 8, 2022, Energy Secretary Jennifer Granholm responded to the governors that the Department of Energy could not issue “blanket waivers.”

On both sides of the political aisle, the free trade movements of the 1990s and 2000s have largely shifted, Kruse said.

“It goes with how radically trade policy has changed in the last five years, six years and how both parties have kind of come to the same place,” Kruse said, “Which is much more of an isolationist perspective than the trade policies we had before then.”

On Jan. 25, 2021, five days after President Joe Biden’s inauguration, the new administration released an executive order on “Ensuring the Future is Made in All of America by All of America’s Workers.”

The Jones Act was specifically mentioned in the order as a law that would be protected.

“I’ve long said that I don’t accept the defeatist view that the forces of automation and globalization can keep union jobs from growing here in America,” Biden said at a news conference before signing the order.

Winds of non-change

More recently, the Jones Act has made its way onto the list of challenges facing the developing offshore wind energy industry.

In October, Ørsted backed out of the Ocean Wind project planned for the New Jersey coast. The Danish firm stated that the decision was based on “high inflation, rising interest rates, and supply chain bottlenecks.”

Later, Reuters reported that the decision was also based on delays for a ship needed to build the project. There are no Jones Act-compliant wind turbine installation vessels. The further development of offshore wind projects in America is currently waiting for the construction in Brownsville, Texas, of the WTIV Charybdis ship.

Dominion Energy, the owner of the vessel, reported in November 2023 that the Charybdis would not be ready until late 2024 or early 2025, a year after the expected delivery date.

According to the Department of Energy, there are two offshore wind farms in operation off the U.S. coast today. The Jones Act was heavily involved in defining how the facilities would be installed and maintained, according to Kruse.

Kruse’s firm, Arbo, conducted a study on offshore wind in 2022, “Regulatory Decisions and Proposed Legislation Make Offshore Wind Even Less Likely.” Unsurprisingly, Jones Act-approved crews and boats are required to maintain the wind turbine installations, he said.

However, the Jones Act also regulates the installation of the facilities, down to the placing of foundations. Arbo found that the first layer of rock at the site could be laid by any type of ship. Any more rock, and a Jones Act ship has to be involved.

Protected sea turf

The U.S. shipping industry has been built around the provisions of the Jones Act, and several organizations have formed to protect the legislation.

The Jones Act Enforcer is a boat owned by the private Offshore Marine Service Association. The trade association represents 60 firms that operate marine service vessels, which repair, maintain and supply U.S. ships.

Painted Navy gray, the boat travels up and down America’s coastline, surveilling for and recording “the dangerous practices playing out in American waters by documenting foreign vessels skirting U.S. law,” according to the group’s website, which features a picture of the boat with the caption “We’ll Be Watching” in large, white letters.

The American Maritime Partnership is another organization dedicated to keeping the Jones Act in place, saying the industry supports 650,000 U.S. workers and is essential to national security. The organization regularly disputes claims made by opponents or critics of the Jones Act.

In July 2023, the organization posted a critical note of celebrity chef Padma Lakshmi, who said that Puerto Ricans pay more than necessary for their food because of the high costs of shipping from American ports. The AMP cited a 2013 report from the U.S. General Accounting Office that found that higher costs in Puerto Rico could not be attributed to the Jones Act.

Politicians with connections to districts that rely on the Jones Act remain strong supporters. Last National Maritime Day, designated as May 22, Rep. Clay Higgins (R-La.) wrote a letter that appeared in trade publication Dredging Today.

“Maritime infrastructure plays a significant role in South Louisiana’s economy,” Higgins wrote. “Our district is a testament to the importance of the maritime industry in preserving our heritage, bolstering our national security, and supporting thousands of good-paying American jobs.”

Energy on the sidelines

Hinds Howard, a portfolio manager for CBRE, said one of the primary factors in favor of the Jones Act is simple inertia. The law’s been in place for over a century and is considered part of the legal landscape, he said.

“People just sort of don’t believe it can be changed,” Howard said. “I’m not really sure what the roadblocks are, but the level of urgency around it is not high among management teams that I’ve talked to.”

A repeal of the Jones Act could even hurt some energy companies financially. Midstream leader Kinder Morgan has a fleet of 16 Jones Act-compliant tankers for crude, condensate and other products. The company entered the tanker business in 2014.

However, studies have shown that a repeal could benefit the entire industry and its customers in a fairly significant way, depending on where they live.

In “Impacts of the Jones Act on U.S. Petroleum Markets,” economists Ryan Kellogg and Richard Sweeney, found that the primary beneficiaries of a repeal would be populations on the East Coast, which would see their overall fuel costs fall by $802 million annually.

“Eliminating the Jones Act would have reduced average East Coast gasoline, jet fuel, and diesel prices by $0.63, $0.80, and $0.82 per barrel, respectively, during 2018-2019,” the 2023 study found.

However, the decrease in price diminishes closer to the shipping centers on the Gulf, and people in those areas would see gasoline prices rise by about $0.30/bbl.

“These distributional impacts potentially speak to the politics around the Jones Act,” the authors wrote.

Kruse said he could see the energy industry driving an eventual change in the law, but it would take far more organized opposition than currently exists, and it’s hard for many industry leaders to see much of a payoff.

“You could say that generally incumbents want the status quo because they’re organized around (the Jones Act), and they’re in long-term contracts to deliver energy with existing routes,” Kruse said. “And so, if you throw in something that throws that awry, that could be disruptive.”