The Jones Act: A Red Herring in the Debate on Puerto Rico’s Energy Situation

As part of the national debate surrounding Puerto Rico’s energy and fiscal situation, certain interests have advocated for repealing or changing the U.S. coastwise laws, commonly referred to as the Jones Act, to exclude Puerto Rico from its requirements as one way to address Puerto Rico’s challenges. However, the Jones Act does not adversely affect Puerto Rico’s current energy or fiscal situation. Instead, the Jones Act provides significant economic, homeland, and national security benefits to the nation as well as Puerto Rico. Any changes to the Jones Act for the Puerto Rico trades would significantly undermine the benefits that the Act provides to the nation, including, the homeland and national security benefits.

The Jones Act Does Not Adversely Affect Puerto Rico’s Energy Situation

Blaming the Jones Act for Puerto Rico’s energy woes is a red herring.Despite suggestions to the contrary by critics of the Jones Act, the law is not adversely affecting Puerto Rico’s current energy situation. More than two-thirds of the vessels calling on Puerto Rico are foreign-flagged vessels, a majority of which are delivering energy cargoes from abroad, and those vessels are not subject to the Jones Act. Moreover, there are Jones Act vessels authorized to move merchandise between Puerto Rico and the United States that are capable of meeting Puerto Rico’s energy needs, including the delivery of liquefied natural gas (LNG). Smaller volumes of LNG can be, and have been, transported using standardized shipping containers (ISO containers) aboard Jones Act vessels. Puerto Rico already enjoys a rare Jones Act exception under 46 U.S.C. § 12120 that allows certain vessels not otherwise qualified to move LNG, or liquefied petroleum gas, from the United States to the island. This special exception has been available since Congress enacted it in 1996, but Puerto Rican interests have never used the exception in part because large volumes of LNG are currently unavailable and unlikely to be available for delivery from the United States into Puerto Rico until mid-to-late 2018. Cheniere’s Sabine Pass LNG terminal in Louisiana is the only lower-48 liquefaction/export terminal currently in service that utilizes traditional LNG carriers for shipments of LNG. Because LNG from the Cheniere terminal is already subscribed on a long-term basis, Puerto Rico still lacks a long-term source of LNG from the United States. It is a “smoke screen” to blame the Jones Act when Puerto Rican users do not even have a U.S. source for their LNG and Puerto Rico lacks much of the necessary infrastructure to fully utilize LNG and demand to attract bulk shipments. Claiming that there is significant cost savings associated with the purchase of U.S. source LNG is also unlikely given that the LNG would have to be transported over a distance more than three times that of the LNG shipped from Trinidad to Puerto Rico. Until additional LNG liquefaction/export facilities come online, there is adequate time for interested stakeholders to acquire the services of existing American LNG vessels, to use the special exception for certain vessels, or to contract with domestic shipbuilders to build, or convert, Jones Act vessels to transport larger volumes of LNG to Puerto Rico. Jones Act operators are prepared to make the necessary investments in Jones Act-qualified, U.S.-built LNG vessels to address future demands in the domestic LNG trades.

Changing the Jones Act for Puerto Rico Would Undermine Homeland and National Security

The Jones Act is vital for maintaining a commercially viable, U.S.-flagged, and U.S.-built merchant fleet, which is important to military readiness by supporting the defense shipyard industrial base and providing a cadre of qualified American seafarers for times of war or national emergency. Repealing or changing the Jones Act for Puerto Rico would also undermine significant investments made by domestic shipping companies, erode confidence in domestic shipbuilding markets, and reduce opportunities for American companies to build more American ships, which would have a deleterious impact on the industrial base and U.S. national security. There is no reason to consider waiving the Jones Act to address Puerto Rico’s energy situation for the reasons described above. Congress understands the national, economic, and homeland security benefits of the Jones Act and historically has been opposed to legislation that would undermine these benefits and outsource American jobs. Because of the economic, national, and homeland security benefits that the Jones Act provides, the Jones Act enjoys strong support in Congress, and inclusion of an anti-Jones Act provision in any Puerto Rico assistance package would reduce overall Congressional support for that package.