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Jones Act changes could disrupt offshore oil and gas sector

Smith asserts offshore industry is particularly vulnerable to Jones Act threats. Credit: Jim Allen/FreightWaves

Provisions geared toward strengthening the Jones Act that were included in legislation authorizing the U.S. Coast Guard could make offshore oil and gas projects more costly.

The provisions were part of the Coast Guard Authorization Act of 2019, which the U.S. House Transportation & Infrastructure Committee reported favorably out of committee on June 26. Coast Guard reauthorization is one of the few pieces of legislation that gets bipartisan support, so chances are high it will pass the full House chamber before having to be scrutinized in the U.S. Senate.

Under the Jones Act, any part of the transportation of cargo between two points in the United States – including beyond the territorial limits offshore, by virtue of the Outer Continental Shelf Lands Act – is restricted to vessels that are flagged, built and crewed in the U.S.

But interpretations of how the Jones Act applies to foreign flagged vessels required to install equipment used for offshore oil and gas rigs have varied, particularly given that no U.S. flag ships are built to handle this type of installation, leaving the work to foreign ships.

The Jones Act provision in the Coast Guard bill creates a waiver process whereby a foreign heavy-lift vessel can only be used after the U.S. Secretary of Transportation determines there are no available qualified U.S.-flag vessels.

Jones Act supporters see the waiver process as a necessary protection for U.S. flag vessels.

“The Jones Act sets a high bar for the transportation of merchandise by specifically stating that foreign flag ships may not engage in ‘any part’ of the transportation of merchandise, and this provides a legally compliant and transparent way for these operations to continue to proceed if a U.S vessel is not available,” Aaron Smith, president and CEO of the Offshore Marine Services Association (OMSA), told FreightWaves. “OMSA is very glad to see that the House Coast Guard Bill included these provisions.”

The offshore oil and gas industry, however, which benefits from less strict interpretations of the law that allow for the use of foreign-flagged vessels, considers the added requirement as hindering efficient operations using vessels that they consider more suitable to do the work.

“The oil and gas industry does not want any part of these waivers – they’re against any new regulatory process that can add time and costs to construction,” an oil and gas industry source who declined to be identified told FreightWaves.

The extent to which the new provision, if it were to be made part of the law, could affect the growing U.S. offshore wind industry is not certain.

In a research note published by the law firm Winston & Strawn, Charlie Papavizas, who heads the firm’s maritime and admiralty practice, pointed out that the provision “is limited to ‘installation vessels’ which must, among other things, be used to install ‘platform jackets’ on oil rigs. Platform jackets are defined in existing law, according to Papavizas, “with a focus on oil and gas installations, which would make the application of the law to offshore renewables unclear.”

The Coast Guard legislation would also amend existing Jones Act waiver policy to require “confirmation that there are insufficient qualified vessels to meet the needs of national defense” when seeking a Jones Act waiver from the Secretary of Defense.

Such a request was made by the Governor of Puerto Rico late last year when he sought a 10-year waiver to allow liquefied natural gas to be exported from Florida to Puerto Rico in U.S. flag vessels, but President Trump decided against issuing the waiver in May.

John Gallagher

Based in Washington, D.C., John specializes in regulation and legislation affecting all sectors of freight transportation. He has covered rail, trucking and maritime issues since 1993 for a variety of publications based in the U.S. and the U.K. John began business reporting in 1993 at Broadcasting & Cable Magazine. He graduated from Florida State University majoring in English and business.