Even America’s Puerto Rico Gets Its LNG From Russia, Not the US Mainland

Washington dreams of replacing Russian gas in Europe but can't quite pull it off even in parts of the US

Pre-historic (but politically irrepealable) legislation makes US tanker gas unviable in the US

In the coming days a Spanish-flagged ship, the Catalunya Spiritwill deliver a shipment of Russia-originated liquefied natural gas (LNG) to Puerto Rico. Bizarrely, the United States—a leading exporter of LNG—is nonetheless importing it from a geopolitical rival. And this isn’t a first. Last year a supply of Russian LNG arrived in Boston amidst a spike in demand to fight off the winter cold.

So what gives?

Basically, the Jones Act. This 1920 law mandates that vessels transporting cargo within the United States must be U.S.-registered, at least 75 percent U.S.-owned, at least 75 percent U.S.-crewed, and U.S.-built. But no ships capable of transporting LNG in bulk quantities that meet these requirements exist. Of the world’s more than 525 LNG carriers, not a single one is Jones Act-compliant. And so even as ships laden with U.S. LNG voyage to countries as distant as India and Japan, it cannot be sent by water to other parts of the United States.

This is almost certain to remain the case so long as no changes are made to the Jones Act. The law’s strictures virtually guarantee that transporting U.S. LNG to Puerto Rico, or via ship to any other part of the United States, will never make economic sense.

The cost of ship construction alone is prohibitive. According to the Wall Street Journal, a U.S.-built LNG carrier would cost over half a billion dollars more than one purchased from a South Korean shipyard ($700 million versus $180 million). Beyond the general inefficiency of U.S. commercial shipyards, this differential is explained by a lack of expertise—U.S. shipyards have not built an LNG carrier since 1980. In a 2015 GAO report one U.S. shipyard admitted that to build such a ship it would have to “hire an additional 250 to 300 skilled Korean workers for the duration of the build time to ensure the work is done correctly.”

Crewing the ship with Americans still further diminishes the attractiveness of a Jones Act-compliant LNG carrier. U.S.-flagged ships are estimated to have operating costs in excess of $6 million per year compared to ships operating under foreign flags, with U.S. crews the primary cost driver.

To make the math pencil out, a Jones Act-compliant LNG carrier would have to charge rates well above those of foreign-flagged carriers. This would cut into the savings of using cheap U.S. LNG in the first place, if not erase it entirely. And when such a ship was not delivering LNG to Puerto Rico, how would it earn its keep? For deliveries to international destinations the ship would have to compete against foreign-flag vessels with far lower costs. Any U.S.-built and U.S.-crewed LNG carrier would almost certainly be unemployable and unviable on a long-term basis.

Flying cows and the importation of Russian gas—the gross inefficiencies wrought by the Jones Act would be laughable were they not so serious.

Source: The Cato Institute

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Grand Nagus Zek
Grand Nagus Zek
3 months ago

wow – the empire of stupid strikes again rofl; getting to the stage where you can’t even make this up anymore…

CHUCKMAN
3 months ago

This is an interesting little set of facts about the negative effects of a century-old American law upon an important aspect of modern trade and commerce.

But then so many things which are controlled by legislation are of this nature. That is not meant as a castigation of enlightened government activity, but of the far too much of its activity that is not enlightened. Government can play a very helpful role in many important activities, but it far too often insists on doing the opposite

The political and other drives behind such laws as the Jones Act have no relationship to economic realities and may even reflect wishes or fantasies. The same, unfortunately, might be said of so much of what America does today in the world.

Its fanatical and widespread use of sanctions in a desperate effort to make others conform to American wishes, sanctions being American laws which should apply only to Americans. Even then, they would, of course, be anti-competitive, but applied as now they are now, harshly to much of the planet, they are destabilizing as well as anti-competitive.

In the process of enforcing these against others, America is literally slowly eroding international good faith in the validity of the American dollar as the international reserve currency as well as undermining faith in various American arrangements and institutions.

In general, America’s good faith in many matters is being questioned as a result of its own acts.

People want a reserve currency for the legitimate functions of a reserve currency – as a convenience for payments and a store of value, etc. They do not want a reserve currency loaded down with political and religious baggage. Just another aspect, and a far more important and pervasive one, of what the Jones Act represents for modern shipping.

The heavy use of tariffs to jawbone other states into adjusting to American expectations in trade and away from naturally-occurring international economic realities, attempting to shift trade flows by force of artificial costs to its own favor, is really a form of Mercantilism, long recognized as erroneous and inappropriate.

The fundamental assumption of Mercantilism is that trade is a zero-sum game, that is, that any gains someone else might make in trade are losses for me. Apart from being a potentially destructive idea, it is provably false, yet we have the President of the United States busy evangelizing it as gospel with a vengeance, and we certainly don’t hear a lot of opposition from either party in Congress

There are so many things about America today of the nature of the Jones Act. The huge, dragging costs of the Pentagon and the massive security services, for example, make the United States uncompetitive with so very many other states. These are deadweight costs that produce little in the way of useful goods and services.

America’s patriotic true believers answer that that only reflects the fact that America’s friends and allies and competitors do not pay their fair share. Fair share of what? Effectively, of the cost of telling everyone else on the planet what to do and intimidating them into doing it.

It is clear that genuine international security for trade and commerce – an important economic support service that a military provides – could be far more cheaply and fairly provided by cooperative arrangements through international institutions.

In the end, we all know that religious beliefs have no place in business or trade or diplomacy, but Americans somehow don’t at all associate that reality with their Patriotism-based demands and pressures and threats abroad.

Not recognizing that fundamental reality is certainly only adding to naturally-occurring forces at work in the world such as the emergence and new and more competitive states and aspects of technology changing all international economic calculations.

And it ultimately only erodes further America’s fortuitous post-WWII status, a blessed status Americans have come to believe that they just naturally deserve. And what is that but another tenet of a secular religion?

Trouble is, too, that apart from its economic consequences, it so easily becomes a route to war.

Stephan Williams
Stephan Williams
3 months ago
Reply to  CHUCKMAN

I sometimes challenge your positions but right here, right now, you nailed it.

Respect.

Anti-Empire