Jones Act Tanker Market to Grow with Oil Production Boom

By Michelle Howard
Thursday, May 15, 2014

The Jones Act has been blamed for everything from higher prices of goods and oil to a shortage of rock salt supply in the Northeast during the past winter, but the 94-year-old U.S. federal statute governing the U.S. coastal shipping trades will not be going away anytime soon.

The solid status of this deeply entrenched U.S. federal maritime law is reflected in heavy investments by oil, logistics and shipping companies in this lucrative domestic shipping sector. Last December, Kinder Morgan spent nearly $1 billion in its acquisition of its first Jones Act tanker assets when it bought American Petroleum Tankers and State Class Tankers. The market outlook for U.S.- flagged oil tankers remains bright, and some companies are banking on that.

The Jones Act shipping market has enjoyed a revival in the past few years. Prior to the rapid growth in domestic oil production, U.S. shipping and shipbuilding industries have been in the doldrums. Several shipyards were forced to shut down due to a lack of new ship orders and demand.

So far, the Jones Act Medium-Range oil tanker fleet is pegged at about 44, with 13 new ships on the way in 2014-2016. Most U.S. oil companies do not own these ships, but many charter and operate these ships on long-term contracts.

According to U.S. shipping sources, BP operates two clean and four dirty Jones Act tankers, Chevron has four, ExxonMobil has five, Crowley Maritime seven, Koch one, Morgan Stanley one, Overseas Shipholding Group one, Phillips 66 seven, Petrobras one, Seabulk three, Shell two, Tesoro two and U.S. Shipping Corp. two.

For newbuildings, ExxonMobil will receive two new Jones Act tankers in 2014, Crowley four in 2015-2016, American Petroleum Tankers four in 2015-2016 and Seabulk three in 2016. Ship orders at U.S. shipyards on the Gulf Coast, California and Philadelphia are full for the next three years.

The insatiable demand for U.S.-flagged oil tankers has taken off in the past few years in tandem with the rapidly growing domestic oil production, and it is not showing any sign of slowing down despite an estimated fleet size increase of more than 25% over the next two years.

The strong demand for U.S.-flagged tankers or Jones Act ships has led to a sharp price spike in U.S. coastal freight rates and a very tight vessel supply. This in turn pushed the Southeast oil products markets to rely more on higher-priced imports from Europe than the U.S. Gulf Coast more than a year ago due mainly to difficulty in securing Jones Act ships to deliver products. The higher costs are passed on to consumers.

The high-cost domestic shipping law is essential because it helps to maintain a critical military strategy for the U.S., which relies on the use of U.S.-flagged ships and crews and the availability of a shipyard industrial base to support national defense needs, according to the American Maritime Partnership.

The Jones Act requires all goods transported between U.S. ports to be carried by U.S.-flagged and U.S.-built ships, and these ships must be owned and crewed by U.S. citizens and U.S. permanent citizens.

The domestic American maritime industry strengthens U.S. national security at zero cost to the federal government, it said. The domestic maritime fleet provides capacity and manpower that the armed forces can draw upon to support U.S. military operations. American ships, crews to man them, ship construction and repair yards, intermodal equipment, terminals, cargo tracking systems, and other infrastructure are available to the U.S. military at a moment's notice in times of war, national emergency, or even in peacetime.

Also, the Jones Act ensures a strong and vibrant maritime industry, which helps ensure the United States maintains its expertise in shipbuilding and waterborne transportation. The U.S. Navy's position is clear -- repeal of the Jones Act would "hamper America's ability to meet strategic sealift requirements and Navy shipbuilding."

Without American maritime, the U.S. would be dependent on foreign-owned and foreign-flagged vessels for the transport of waterborne commerce in and around the country. The Jones Act is also critical to U.S. economic security. The 40,000 Jones Act vessels operating in the domestic trades support nearly 500,000 American jobs and almost $100 billion in annual economic impact.

Econs 101

Apart from the national security argument, some tanker analysts said that the high demand for Jones Act tankers is also supported by better economics and practicality when compared with pipelines.

"It is much simpler to charter a ship than to approve and build a pipeline," to meet the rising shipping demand, Megan McCurdy, who works in business development and consulting at shipbroker and energy advisor Poten & Partners in New York, told OPIS recently.

Like rail, ocean tanker shipping also offers more delivery flexibility to more destinations than pipelines.

With 13 new Jones Act tankers joining the existing active fleet of about 44 tankers in 2014-2016, the influx of new tonnage would have a limited negative impact on the spot Jones Act daily rates.

"However, we continue to be fairly bullish on demand for these assets in both the crude oil and clean refined product trades alike in the near term," McCurdy said.

Increased crude oil flowing from the Midcontinent into Texas in general will help support higher trade volumes to other refiners in the region as well as the U.S. East Coast, she said. In addition, healthy refining margins in the U.S. Gulf Coast supports domestic trade fundamentals for refined products as well.

McCurdy added that the entire Jones Act fleet includes more than 300 ocean-going tank barges and tankers that are capable of transporting petroleum in the "blue water" or offshore market. There are also thousands of smaller units involved in the "brown water" or inland petroleum transportation market.

Despite some of the prevailing market sentiment of a tight vessel supply, McCurdy said that the Jones Act tanker and barge market today is adequately supplied.

Tanker assets regularly engage in relet business and experience much higher utilization rates as a result. Installed pipeline capacity and deliverability help establish the marginal cost of Jones Act transportation, but it is only part of the equation.

"U.S. Gulf Coast refined products supplies, whether moved by pipe, barge or tanker, still have to compete with European or locally available supplies to satiate demand in the Northeast," she said.

Despite the oil market perception of more clean refined products tankers converting to dirty because a comparatively higher demand for crude transportation over oil products, McCurdy said that there has not been any rate premium for dirty versus clean trading on a sustained basis historically.

"However, we have seen an increased interest in improving flexibility of units (tankers and barges) in order to carry crude oil. Certain modifications may have to be made, namely, installing vapor recovery system to enable vessels to carry crude oil, in addition to clean and dirty refined petroleum products," she said.

"Units (vessels) will switch back and forth between clean and dirty trading over time, but not a voyage by voyage basis. At present, we see strong demand for both crude oil trading and clean refined products, and vessels will elect to participate in the trades that will yield the highest returns," McCurdy said.

Maritime Reporter August 2015 Digital Edition
FREE Maritime Reporter Subscription
Latest Maritime News    rss feeds

Offshore

Harkand: Expanding the Fleet, Growing a Global Business

International inspection, repair and maintenance (IRM) company Harkand aims to be a $1 billion company. MR’s Tom Mulligan recently met with John Reed, the company’s CEO,

HHI Orders Regasification Systems from Wärtsilä

South Korean shipyard Hyundai Heavy Industries (HHI) has ordered two seawater/propane based regasification modules from Wärtsilä. The systems are to be installed

Hitachi Gas Supply System Order for MHI

Mitsubishi Heavy Industries, Ltd. (MHI) has received an order from Hitachi Zosen Corporation for a high-pressure gas supply system enabling use of natural gas as fuel in marine engines.

Tanker Trends

Strong Returns for Sovcomflot

Russia’s biggest shipping company PAO Sovcomflot (SCF Group) surpassed its own expectations and went forward on both revenue and net profit in the first six months.

CSDC Profts Soar

The bulker and tanker unit of state conglomerate China Shipping Group, China Shipping Development Co (CSDC) has delivered a first half performance which saw its profit spike,

Med Crude-Russian Urals Edges Lower in Med, Baltic

Russian Urals crude weakened in the Mediterranean and in the Baltic on Friday, while trading activity was limited ahead of a long holiday weekend in Britain, traders said.

Energy

Harkand: Expanding the Fleet, Growing a Global Business

International inspection, repair and maintenance (IRM) company Harkand aims to be a $1 billion company. MR’s Tom Mulligan recently met with John Reed, the company’s CEO,

ME Production Receives Two Scrubber Orders

ME Production subsidiary Marine Exhaust Technology has been awarded a new contract for the DFDS vessel Finlandia sailing on the route Rosyth-Zeebrugge. The scrubber contract includes design,

HHI Orders Regasification Systems from Wärtsilä

South Korean shipyard Hyundai Heavy Industries (HHI) has ordered two seawater/propane based regasification modules from Wärtsilä. The systems are to be installed

Barges

MN 100: Bouchard Transportation

The Company: Bouchard Transportation’s history dates back to its incorporation in 1918 by founder, Capt. Fred Bouchard, the youngest tugboat captain in the Port of New York.

ASL Shipyard Secures S$140mln Build Contracts

ASL Shipyard Pte Ltd. a wholly-owned subsidiary of ASL Marine Holdings Ltd., has secured new shipbuilding contracts worth approximately S$140 million for the construction

The Maritime Person of the Year

The Massachusetts Maritime Academy’s annual salute to ‘the person of the year’ this year spotlights McAllister Towing and Transportation Co. and its leadership team.

Vessels

The Hour of Power

Hybrid Marine Technology and Green Ports In 2015 two significant developments are going to make many operators, owners and builders of professional vessels consider hybrid marine power.

TOTE’s 2nd LNG Containership Launched

Shipping company TOTE and shipbuilder NASSCO on Saturday launched Perla del Caribe, the second of two Marlin Class ships – the first containerships in the world to be powered by natural gas.

ME Production Receives Two Scrubber Orders

ME Production subsidiary Marine Exhaust Technology has been awarded a new contract for the DFDS vessel Finlandia sailing on the route Rosyth-Zeebrugge. The scrubber contract includes design,

Government Update

Greek Coastguard Rescues 2,500 over Three Days

Greece's coastguard has rescued about 2,500 migrants and refugees off the country's eastern islands over the past three days, authorities said on Monday, as the

Ships' lifting Apparatus at Abu Dhabi Ports

Abu Dhabi Ports have informed that they reserves the right to refuse the use of ships' lifting apparatus without valid certification and / or if the apparatus

Australian Defence Unveils Indigenous Artwork

Defence today unveiled an Indigenous painting at its Science and Technology headquarters in Canberra as a mark of respect for cultural diversity within the organisation.

Logistics

Georgia Hooks Trident Seafoods

Trident Seafoods has opened a $40 million production and distribution center in Carrollton, Ga., providing 175 full-time jobs and the capacity to produce 50,000

Intermarine Opens Office in Ecuador

Intermarine, LLC, a transporter of project, breakbulk and heavylift cargo, announced it has opened an office in Quito, Ecuador.   The new office will operate

CaroTrans Enhances India-US Network

CaroTrans, a global non-vessel operating common carrier (NVOCC) and ocean freight consolidator, announced a new, direct less-than container load (LCL) import service from Nhava Sheva,

 
 
Maritime Security Maritime Standards Naval Architecture Navigation Pod Propulsion Port Authority Ship Electronics Ship Repair Shipbuilding / Vessel Construction Sonar
rss | archive | history | articles | privacy | contributors | top maritime news | about us | copyright | maritime magazines
maritime security news | shipbuilding news | maritime industry | shipping news | maritime reporting | workboats news | ship design | maritime business

Time taken: 0.5388 sec (2 req/sec)