Colin Grabow
Each day the United States both exports and imports millions of barrels of crude oil and petroleum products. Although a seeming paradox, much of this activity makes perfect sense. Highly sophisticated refineries on the Gulf Coast, for example, import heavy, high sulfur grades of crude oil that are better optimized for processing while lighter, sweeter grades are exported from the region. Similarly, comparative advantage and the pursuit of higher profits may lead US refineries to focus their production on certain fuel types—including for export—while imports are used to meet other domestic fuel needs.
But that’s not the whole story.
Beyond these market‐driven forces, another contributor to this simultaneous exporting and importing is the Jones Act, a protectionist law that restricts domestic shipping to US‐built and flagged vessels. That adds significant costs.
In 2017, tankers that complied with the law were found to be approximately 2.8 times more expensive to operate than foreign‐flagged ships (just over $5 million more per year). Such vessels are estimated to be four times more expensive to build (over $200 million compared to approximately $50 million overseas).
That makes for pricey domestic shipping and a competitive edge for imports able to access more efficient internationally flagged vessels.
East Coast refineries offer an example of this dynamic. Although they enjoy relatively close geographic proximity to Gulf Coast crude, the high cost of Jones Act shipping means these refineries instead overwhelmingly turn to countries such as Nigeria and Libya for their oil needs. In 2022 they imported over five times more oil from abroad (224.7 million barrels) than other regions of the United States (42.5 million barrels).
Notably, much of the oil being imported is comprised of lighter crude grades similar to those already in abundance domestically. But the Jones Act makes it unattractive to move supplies from parts of the country where they are relatively plentiful to other parts where they are needed.
In contrast, refineries in more distant Canada eagerly lap up US crude. In both 2020 and 2021 Quebec, whose largest refinery relies on marine transport for its crude, sourced 100 percent of its oil imports from the United States while New Brunswick, home to Canada’s largest refinery and similarly dependent on tankers, relied on American crude for 38.5 percent of its imports in 2021 and 47 percent in 2020.
Canadian refineries aren’t alone in their appetite for American oil. Last year the Gulf Coast exported over five times more crude oil to South Korea (distance from Houston: 10,000 nautical miles) than the East Coast (distance from Houston to Philadelphia: 1,900 nautical miles). The amount of oil exported to Singapore (11,700 nautical miles from Houston) exceeded shipments to the East Coast by a factor of four. The Jones Act helps explain why China received over three times (76.6 million barrels versus 24.3 million barrels) more Gulf Coast crude than the East Coast.
This dynamic also extends to refined products. With limited pipeline connectivity, New England (PADD 1A in energy parlance) mostly relies on tanker and barge movements to meet its fuel needs.
So where are these tankers and barges coming from? According to data from the National Ballast Information Clearinghouse, which tracks ship arrivals in US ports, last year approximately three times as many foreign tankers arrived from foreign ports as Jones Act‐compliant vessels arrived from US ports outside of New England (mostly New York and New Jersey, where the Colonial Pipeline terminates). Although the majority of these arrivals were from nearby Canada, dozens of arrivals were from more distant origins such as Europe and elsewhere.
The picture becomes even more lopsided after correcting for the fact that Jones Act shipping is overwhelmingly comprised of barges while the foreign arrivals are much larger, self‐propelled tankers.
When measuring these vessel arrivals by deadweight tonnage—essentially the vessels’ carrying capacity—Jones Act vessels account for just 13 percent of vessel arrivals. More deadweight tonnage arrived from the countries of Northwest Europe than the entire rest of the United States.
Such findings comport with Energy Information Administration data revealing that the East Coast received finished motor gasoline in 2022 from as far away as the Netherlands (3.4 million barrels), Belgium (3.2 million barrels), and France (2.4 million barrels), and distillate fuel oils (which include diesel and heating oil) from Qatar (3.9 million barrels), Saudi Arabia (2.4 million barrels), and Russia (2 million barrels) among others.
At the same time, however, the Gulf Coast exported finished motor gasoline to countries as distant as Brazil (13.8 million barrels), Chile (16.3 million barrels), and Peru (12.2 million barrels). The region also sent distillate fuel oils to Argentina (18.6 million barrels), Brazil (52 million barrels), and Chile (49.2 million barrels), among others.
Last year saw Gulf Coast refineries export diesel fuel to the Netherlands (5,000 nautical miles from Houston) instead of New York (1,900 nautical miles away) while at the same time New York—lacking affordable access to domestic supplies—instead purchased diesel fuel from…the Netherlands.
In a more rational world, more oil and fuel would be moved from US oil fields and refineries to other parts of the United States and less would be imported. That wouldn’t just be more economically efficient—generating savings that ultimately benefit consumers and US businesses alike—but would be good for the environment as ships reduce their emissions and burn less fuel by sailing shorter distances.
Easing the cost of domestic transport would arguably also have a salutary impact on national security. A 2022 Philadelphia Inquirer article, for example, highlighted a local refinery’s reliance on Russian oil (distance from Novorossiysk to Philadelphia: 5,600 nautical miles) for 29 percent of its crude oil needs.
The story pointed out that while similar grades of crude were available domestically, it would cost more to transport on American‐flagged ships.
Access to efficient shipping would also help mitigate the threat posed by a shutdown of the country’s key pipelines by providing redundancies and additional options for moving fuel.
Notably, Jones Act supporters don’t dispute the law’s role in disrupting and distorting domestic energy flows. The CEO of Overseas Shipholding Group, which operates 13 Jones Act‐compliant tankers, admitted in 2017 that, “If there was not a Jones Act, then there probably would be more movements of crude oil from Texas to Philadelphia.”
Such inefficiencies, however, are just the Jones Act’s opportunity costs. To these must also be added the direct costs imposed by the law. Over the last five years, for example, an approximate average of 260 million barrels of petroleum products has been annually sent by Jones Act‐compliant tankers or barges from the Gulf Coast to the East Coast (roughly 98 percent of this went to the Lower Atlantic region including Florida, a state which lacks pipeline connections to Gulf Coast energy). Those shipments would have been less expensive to varying degrees—largely depending on distance—in the Jones Act’s absence.
So what is this shipping protectionism accomplishing? Not much.
While the Jones Act is ostensibly meant to provide a fleet of ships to meet US military sealift needs, there are only 43 tankers deemed militarily useful in the Jones Act‐compliant fleet—a number seen as well short of that needed to meet wartime requirements. More importantly, it’s unclear whether those tankers would be able to provide support in the event of a conflict. A 2021 US Maritime Administration report stated that such tankers would be “largely unavailable to [the Department of Defense] without major disruption to domestic transport needs,” while that same year the commander of US Transportation Command expressed great reluctance to use Jones Act vessels in a wartime scenario.
There also isn’t much doing on the shipbuilding front. No tanker has been delivered by a US shipyard since 2017, none are currently under construction, and zero are on order. The high price of such tankers means a limited appetite to buy them.
Protectionism‐induced inefficiency does mean, however, higher prices for US businesses and consumers. Last year analysts with JP Morgan calculated that lifting the Jones Act would save 10 cents per gallon for drivers on the East Coast or over $4 billion per year. And that’s just motor gas. Cheaper access to other fuels such as home heating oil and liquefied natural gas would produce further savings.
Beyond the East Coast, other parts of the United States also suffer from higher costs for energy products induced by the Jones Act. These include the increased cost of shipping Alaska crude oil to West Coast refineries, California refineries’ purchase of oil from distant Nigeria instead of the closer Gulf Coast, and Hawaii’s inability to obtain US propane.
And there is perhaps no better example of the Jones Act’s energy impact than Puerto Rico which, despite its close geographical proximity, purchases little of its fuel from the US mainland even as the neighboring Dominican Republic heavily relies on US supplies.
Over the last 15 years or so the United States has experienced an energy boom that has transformed the country into a leading exporter of various fuels. Unfortunately, the Jones Act prevents Americans from taking full advantage of this bounty.
Special thanks to Dyuti Pandya, Aidan Meath, and Feifei Hung for their assistance with this blog post.
