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The Jones Act is a 1920s legislative relic, a wasteful one-hundred-year old attempt by Congress to address a post-World War I surplus of merchant ships. Today, it is known mostly for its mandate that all goods, shipped by boat between any US port and the ports of some US territories, be carried on US-flagged vessels. Currently, the cost of shipping goods on US-flagged ships is almost three times as expensive as shipping them on foreign vessels. However, because of sustained lobbying by US mercantile marine interests, the mandate continues today.
For at least one commodity, domestically produced natural gas the situation is especially dire. The Jones Act mandate makes it impossible to ship liquefied natural gas (LNG) from one US port to another, as no vessels in the current US fleet are capable of carrying the gas between the Gulf and New York or Boston.
The result is that power companies and others in the Northeastern United States have to purchase LNG from foreign suppliers at substantially higher prices than would otherwise be the case. Thus, natural gas prices in New England are substantially higher than in other US regions.
Senator Mike Lee (R-Utah), Chairman of the Joint Economic Committee in Congress, recently offered an amendment to the Coast Guard Authorization Bill that would waive the Jones Act mandate and permit foreign ships to move goods, including LNG, between US ports if no US ship were available within 60 days. The amendment was rejected amid claims that the LNG issue could be resolved by building a pipeline, and that other waiver programs were already in place.
Those claims represent more of a pipe-dream than a pipeline reality. New pipeline projects are expensive. Since 1996, according to information from the Energy Information Administration, it would cost around $19.5 million per mile to build a pipeline through New England. So building roughly 500 miles of pipeline to move natural gas to Boston from the closest source of supply in Pennsylvania would mean $9.75 billion in construction costs.
Construction costs are not the only problem. New natural gas pipeline projects need years to obtain the required regulatory authorizations. The process includes permits, land purchases, rights of way, environmental impact assessments, and compliance with local, state, and federal regulations. A pipeline proposal initiated today would therefore likely take at least a decade to complete. Realistically, given the current complexities of local and state jurisdictional and political issues, any new pipeline project in New England could be politically infeasible.
The Jones Act waiver proposed by Senator Lee makes obvious economic sense from the perspective of New England consumers, power companies, and a wide swath of commercial interests. Moreover, in the case of LNG and other natural gas shipments, there would be no obvious damage to US shipping companies as none of them operate Jones Act eligible ships capable of delivering LNG in commercial quantities to America’s Northeast.
Providing a Jones Act waiver process would allow US energy companies to exploit their global advantage in natural gas production and expand the extent to which they supply important domestic markets in New England. Since the mid-2000s, on average, natural gas prices in the United States have steadily decreased as domestic production has expanded (it has increased by over 50 percent since 2005), in part due to fracking technologies. Since 2005, US exports of natural gas to other countries have increased almost five fold. Despite this opportunity for cheaper energy, the Jones Act mandate denies New England consumers similar access to inexpensive domestic LNG.
Interestingly Massachusetts receives the majority of its natural gas by pipeline from US sources, but that is not enough for the state’s needs, so the rest currently comes, by ship, at much higher prices from foreign sources. New Hampshire, Connecticut, Rhode Island, and Maine get most of their gas from interstate transfers in the US. Vermont’s natural gas comes almost entirely from Canada.
Finally, some have claimed that Senator Lee’s amendment is not needed because two waiver programs already exist. The first waiver allows the President to suspend the Jones Act for national security reasons, not for commercial purposes, and is therefore irrelevant here. The second, which permits foreign-flagged vessels built before 1996 to carry LNG or liquid petroleum from US ports to Puerto Rico, is also functionally irrelevant as almost all LNG vessels are replaced well before they are 23 years old for safety, efficiency, and cost-saving reasons.
Waiving the Jones Act would have a substantial beneficial impact on the sales of natural gas by US producers to US consumers in New England. Both parties would benefit. Senator Lee’s common sense amendment to the recent Coast Guard Authorization Bill would mitigate any need to construct unnecessary expensive additional pipelines. Waiving the Jones Act is a good bipartisan idea whose time has more than come.
Waiving the Jones Act would have a substantial beneficial impact on the sales of natural gas by US producers to US consumers in New England. It’s a good bipartisan idea whose time has more than come.
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