Trump Considering Waiving Jones Act Mandate for Natural Gas, Sources Say

(Bloomberg) -- President Donald Trump is seriously considering waiving the requirement that only U.S.-flagged vessels can move natural gas from American ports to Puerto Rico or the Northeast, according to people familiar with the deliberations.

The issue was debated during an Oval Office meeting on Monday, following requests from Puerto Rico and pressure from oil industry leaders to ease the nearly 100-year-old Jones Act requirements, according to three people. Although top administration officials are divided on the issue, Trump is now leaning in favor of some kind of waiver, said two of the people, who asked for anonymity to discuss the private deliberations.

The move -- which would be fought by U.S shipbuilding interests and their allies on Capitol Hill -- has been promoted as essential to lower the cost of energy in Puerto Rico and ease the flow of American natural gas to the U.S. Northeast, where there aren’t enough pipelines to deliver the product from Pennsylvania.

But even inside the Trump administration, there are fierce defenders of the Jones Act, a 1920 law requiring that vessels moving cargo between two U.S. ports be U.S.-built, -owned and -crewed. The law was originally designed to protect the domestic shipping industry and the country’s maritime might, and supporters argue that it’s just as essential today to ensure ships are made in the U.S. Any move to weaken or waive the requirements threatens the U.S. shipbuilding industry and the jobs tied to it, they argue.

Navarro, Chao

That divide was apparent during Monday’s White House meeting, where Jones Act supporters included Trump trade adviser Peter Navarro and Transportation Secretary Elaine Chao. Larry Kudlow, the director of the National Economic Council, pushed for waiving the Jones Act, three of the people said.

Even as the White House weighs waivers, a handful of Trump administration officials have pushed to expand the Jones Act’s reach, two of the people said. They are aiming to effectively revive a Customs and Border Protection bid to revoke rulings allowing foreign vessels to transport some equipment to offshore oil rigs. The agency withdrew the formal proposal in 2017, after the oil industry warned it could cripple production in the Gulf of Mexico.

The White House press office did not respond to a request for comment.

Trump faces increasing pressure to relax the shipping requirements. Puerto Rico is seeking a 10-year waiver to allow liquefied natural gas to be delivered to the island on foreign-flagged vessels.

And energy industry leaders have pressed for changes to facilitate natural gas and petroleum product shipments between U.S. states. Among them: billionaire oil man Harold Hamm, the chairman of Continental Resources Inc. and a former Trump energy adviser. In January, Hamm complained at a Houston energy conference that the U.S. has been forced to buy LNG from Russia because there are no Jones Act-compliant tankers to transport liquefied natural gas.

American First

Kristin Thomas, a Continental Resources spokeswoman, said the U.S. Domestic Energy Producers Alliance, which Hamm co-founded, “is in favor of being able to ship U.S. LNG to U.S. ports,” although the group “has not waded into any issues related to Puerto Rico.”

Oil industry leaders argue that the Jones Act restrictions undermine Trump’s American “energy dominance” agenda, by encouraging imports of foreign oil and gas despite abundant supplies inside the U.S. Russian LNG was delivered to Massachusetts last year to help supply consumers in the Northeast U.S. And inland oil refiners argue requirements to use U.S.-flagged vessels boost the costs of obtaining raw crude, effectively subsidizing foreign competitors.

“The Jones Act is completely contrary to the president’s energy agenda, in large measure because it encourages the importation of energy -- diesel from Europe, LNG from Russia -- rather than the use of energy made in America and developed and refined by American workers,” said Mike McKenna, a Republican energy strategist. “If you’re in favor of the Jones Act, you’re in favor of damaging consumers and helping very specific interests line their pockets at consumers’ expense.”

Although no large LNG carriers comply with Jones Act requirements today, federal law already makes an exception for foreign tankers built before 1996 to transport LNG to the island, as long as they are brought under the U.S. flag.

American shipbuilders also are constructing a wave of new LNG bunker barges capable of refueling ships and delivering the fuel to other facilities. Conrad Industries Inc. delivered the first U.S.-built LNG bunker barge last year, at least a second is already under construction, and maritime experts more demand to service LNG-powered cruise ships.

Long-term contracts to supply LNG would spur vessel construction, said Darrell Conner, a registered lobbyist for the American Maritime Partnership that defends the Jones Act. “The domestic maritime industry is capable of responding with the vessels needed to meet market demand, including the building of new vessels.”

Congressional Opposition

Trump has waived Jones Act requirements on a limited basis, granting Puerto Rico a temporary reprieve in 2017, after Hurricane Maria ravaged the island. Trump also briefly lifted Jones Act requirements to ensure gasoline, diesel and jet fuel could be moved among U.S. states more quickly after the storm.

Puerto Rico’s push for a 10-year waiver drew swift pushback from the bipartisan leaders of the House Transportation and Infrastructure Committee, who in February sent a letter to the Homeland Security Department arguing there was no justification for the move. Jones Act waivers are meant to be rare, limited only to cases where there is a national defense need, and there is “no valid national defense rationale” to waive the requirements for Puerto Rico, they said.

Matt Woodruff, chairman of the American Maritime Partnership, stressed that the move would counter Trump’s “America First” commitment. “American maritime is the quintessential ‘America First’ industry,” Woodruff said, “and we are confident President Trump, who has championed and supported our American shipyards, mariners and industrial base, would not start us down a path now that would cripple our national security.’’

To contact the reporters on this story: Jennifer A. Dlouhy in Washington at jdlouhy1@bloomberg.net;Jenny Leonard in Washington at jleonard67@bloomberg.net;Jennifer Jacobs in Washington at jjacobs68@bloomberg.net

To contact the editors responsible for this story: Jon Morgan at jmorgan97@bloomberg.net, John Harney

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