Offshore energy industry navigating 100-year-old US law

Section 27 of the U.S. Merchant Marine, sponsored by Senator Wesley L. Jones and enacted in June 1920, requires vessels traveling between any two U.S. points to be U.S.-manufactured, -owned, -flagged, and -crewed (with some exceptions). This has become a stumbling stone for the offshore energy industry 100 years after the law was enacted, and even more so now that the offshore wind developers are gearing up for construction.

The offshore wind sector in the United States, with construction of several wind farms to take off over the coming several years, has driven some shipowners to building Jones Act-compliant transport and installation vessels. Meanwhile, the country’s oil & gas sector recently asked the Federal Government to temporarily waive the law so the U.S. producers could more easily move their products within the country.

According to a recent report from Competitive Enterprise Institute (CEI), there are also no LNG tankers in the U.S. under the Jones Act and, as for LNG production and usage, Puerto Rico is affected by the Jones Act and is importing LNG from Russia, France and Belgium. Puerto Rico had asked the government for a ten-year waiver so it can import LNG from the mainland U.S. instead, the report said, adding that Puerto Rico is entirely reliant on foreign oil and other energy sources due to the law.

In the offshore wind sector, vessels that will ensure Jones Act-compliance are announced to be built. While the expensive, specialised wind turbine installation vessels already exist in Europe, building such vessels in the U.S. under compliance with the Jones Act is costly.

Cue “feeder” vessels. Two U.S. companies recently announced they will build two SuperFeeder vessels, which will transport wind turbine components from the mainland to a Jones Act non-compliant installation vessel at the project site.

Still, the U.S. will hardly be left without its own installation vessel. In May, a consortium led by Dominion Energy informed that it was developing a Jones Act-compliant installation vessel that will be ready for work in 2023. Dominion Energy said the vessel will be capable of handling all current turbine technologies and next-generation turbines with 12+ MW capacity.

In 2017, a study by GustoMSC estimated that a wind turbine installation vessel with a main crane capacity of 1,500 tonnes and a beam of 42 metres, with packages prepared and submitted to U.S. shipyards, would have an average cost of $ 222 million and a build time of 34 months. The cost of a feeder barge with a variable load capacity of 3,400 tonnes (3740 ST) and a beam of 38 metres, designed to support a field-bound wind turbine installation vessel, is estimated to $ 87 million and a build time of 25 months.

To what extent (and to what amount) would having a couple of feeder vessels along with an installation vessel – which is usually the transport vessel as well – would affect the end cost of an offshore wind project, it is not known for certain.

In 2018, GustoMSC and Barge Master agreed to work together on developing a motion-compensated feeder solution for the first offshore wind projects to be built in the U.S.

The Jones Act-compliance, however, does not stop at construction and requires all ships operating at an offshore wind farm during its operation and maintenance stage to also be U.S.-built, -flagged, -owned, and -crewed.

Looking at this stage of offshore wind farms, two years ago, U.S. company Aeolus Energy signed an agreement with Norway’s Ulstein Design & Solutions to design a Service Operations Vessel (SOV) that would be Jones Act-compliant and fully customised to the company’s requirements.

The oil & gas industry in the U.S. has also been hit by the rules of the 1920 law over the recent few months, with the global pandemic in place and oil prices dropping.

In April, American Energy Alliance reported that leaders of several U.S. oil producers were to discuss a temporary relief with the Federal Government, with one of the proposals being a temporary waiver of the Jones Act for transporting oil.

The U.S. oil industry has been affected by the law aside from the current situation as well.

Colin Grabow from the Cato institute said: “Jones Act‐​compliant ships are so expensive that there are documented examples of oil being shipped to East Coast refineries from Saudi Arabia for three times cheaper than sending it from the Gulf Coast”.

High costs, in combination with limited numbers of U.S. Jones act-compliant vessels, make for extremely high shipping rates, Grabow said.

This has also been the subject of the CEI report, written by Mario Loyola, who said that the law has imposed hidden costs on U.S. consumers for 100 years now.

The report argues that, instead of protecting the U.S. industry and, ultimately, consumers, the Jones Act is doing just the opposite. “Its chief beneficiaries are foreign exporters into the United States, whom the law in effect protects from American competition”, Loyola states in the report.

One of the recommendations in the report is exempting shipping sectors from the Jones Act where the relevant vessels do not exist in the Jones Act fleet.

“[S]everal kinds of vessels used by other developed industrial countries are no longer made in America partly because of the Jones Act and do not exist in the Jones Act fleet. LNG tankers are one notable example. Relatedly, sectors that do not exist at all in American domestic trade – such as coastal transshipment – should be exempted from the Jones Act”.