WASHINGTON — A century-old federal law designed to protect the US maritime industry is having a chilling effect in New England in the wake of the Ukraine war, helping drive up home heating oil prices and threatening to cause supply shortages that could become severe enough to trigger rolling blackouts if this winter is much colder than usual.
Known as the Jones Act, the law requires that any goods transported between US ports be carried on domestically built and owned ships manned by American crews. That means foreign tankers can bring shipments to Boston from abroad but not from the Gulf Coast. And since the war has strained global shipping capacity, those stringent requirements are becoming a significant obstacle to delivering heating oil and liquefied natural gas to New England because there is only a small fleet of US commercial vessels available and limited ability to bring in the fuels by pipeline.
“If it gets cold, the lights are going to go out,” predicted Sean Cota, head of NEFI, a Massachusetts-based organization of independent heating oil dealers in the region. “There’s no way you can move enough energy via pipeline, trains, and trucks to make up what would be needed in vessels if it’s cold.”
Cota and other industry officials, including Joe Nolan, chief executive of Eversource, New England’s largest utility, joined all six New England governors in calling for President Biden to temporarily suspend the Jones Act. Doing that, they argue, would allow foreign tankers to carry shipments from Gulf Coast facilities to ports in Boston and the Northeast.
But the Biden administration has been noncommittal and would have a tough time helping because of the red tape required for any exemptions. For one, a waiver must be “in the interest of national defense.” Moreover, recent changes now require a waiver for each shipment, which requires complicated assessments of the individual circumstance, rather than a blanket exemption that could extend to a sustained number of deliveries.
Energy Secretary Jennifer Granholm told the governors that the law does not allow “preemptive blanket waivers” of the Jones Act, although she promised individual waiver requests would be quickly reviewed.
The waivers also can be controversial, with vocal opposition from the shipbuilding industry, labor unions, and some members of Congress. For example, in September, the Biden administration issued waivers to allow foreign tankers to deliver badly needed diesel fuel and liquefied natural gas to Puerto Rico after Hurricane Fiona, a move that sparked criticism from Republicans and Democrats.
“You can’t just say, ‘Hey, grandma’s freezing, we need more fuel.’ ... There has to be a national defense element incorporated into this,” said Colin Grabow, a research fellow at the libertarian Cato Institute think tank who has studied the Jones Act. “My worry here is if New England is counting on the executive branch to bail them out, it’s no sure thing.”
The head of the American Maritime Partnership, which represents US shipping companies and maritime workers, said the Jones Act was not the cause of higher energy prices and wouldn’t reduce consumer costs.
“Such waivers undermine our national security, which relies on having a readily accessible domestic maritime industry and a pool of American mariners,” the organization’s president, Ku’uhaku Park, wrote to the governors last month.
Senator Angus King, a Maine independent, said he and Senator Jeanne Shaheen, a New Hampshire Democrat, are working on legislation that would authorize the president to issue a limited, short-term Jones Act waiver to allow for shipments of energy supplies to the region this winter.
“The flexibility the administration has is limited by national defense,” King said. “And this [situation], you can stretch it and call it national security, but it’s really keeping people warm in the winter.”
New England is in a uniquely vulnerable position because of geography and a greater reliance on oil for heating than any other region. The Colonial Pipeline, which runs from Houston to New Jersey, is the only major pipeline to the Northeast. Other significant energy shipments have to come via tanker.
The Jones Act, part of the Merchant Marine Act of 1920, was put in place to help ensure the nation had a strong maritime industry that could be tapped in times of war. Critics argue the modern Navy has made the restrictions unnecessary. And they note the Jones Act hasn’t even done what it was supposed to do.
Commercial shipbuilding in the United States has been in decline for years as the focus has shifted to military vessels. The last commercial ship produced by Bath Iron Works in Maine, for example, was delivered in 1984. As business has shifted, the number of vessels that meet Jones Act requirements has fallen to 93 this year from 257 in 1980. Of those, just 56 are tankers, said Matt Kimmel, the principal analyst covering refining markets for Wood Mackenzie, an energy research and consulting firm.
With so few tankers to ship energy products between US ports, that leaves New England highly dependent on foreign shipments for the extra supplies the region needs in the winter. And those tankers are harder to find because of Russia’s invasion of Ukraine.
European nations are buying less energy from nearby Russia, replacing it with shipments from the Middle East and the United States. In turn, Russia is shipping more oil to India. So, many tankers are traveling farther, limiting overall shipping capacity. Imports to the Northeast have not been able to keep up with demand and inventories are low.
The Northeast has about 18 days of heating oil supply on hand compared to a healthy level of 30 days, Kimmel said. ISO New England, which operates the region’s power grid, warned this fall that extremely cold weather could lead to rolling blackouts because of reduced supplies.
Problems with the Jones Act are not only logistical, they also are financial as the law has raised prices by making it more difficult to ship domestically. And that’s on top of the higher energy costs caused by the war. The US Energy Information Administration estimated last month that it would cost 27 percent more this winter than last to heat a home with oil, although prices have dropped significantly since then. A gallon of heating oil in Massachusetts averaged $4.86 in the week that ended Monday, compared with $5.93 just a month earlier, according to EIA data. Still, the price was only $3.29 a year ago.
A spokesman for Massachusetts Governor Charlie Baker, who joined the other New England governors in writing to Granholm about the problem this summer, said the administration has spoken to federal Energy Department officials about a potential Jones Act waiver or suspension “for some or all of the winter season,” said Troy Wall, a spokesperson for the Massachusetts Executive Office of Energy and Environmental Affairs. Governor-elect Maura Healey has said she supports waivers as well.
Congressional action would make waivers for New England easier this winter, but it could be difficult to pass.
“The Jones Act is essential to our national security,” said Senator Roger Wicker, a Republican from Mississippi, which has a large shipbuilding industry. “I would always have concerns when there are exceptions.”
Even some New England lawmakers have raised concerns.
“I’d have to see some strong data on how much that’s likely to move the needle before I’d be willing to make such a significant change,” said Senator Elizabeth Warren, a Massachusetts Democrat.
Grabow of the Cato Institute argued the Jones Act should be scrapped because it’s not serving its purpose to boost the US maritime industry and is actually causing more reliance on foreign oil.
“The Jones Act theory is that we have American ships transporting American products between American ports,” he said. “The reality is we have foreign ships transporting foreign products to American ports because we’ve made the cost of shipping so absurd.”
Correction: A previous version of this story had an incorrect name for Eversource CEO Joe Nolan.