Oil Tycoon Angers Jones Act Supporters By Using Rare Shipping Tactic To Increase Profits

Lipcon, Marguiles, Alsina & Winkleman, P.A

Thomas O’Malley, the U.S. refinery tycoon who has penchant for making a profit from rundown facilities, has decided to employ a rare shipping tactic in order to bolster margins. His idea involves bringing imported Saudi crude from the Gulf of Mexico to his East Coast plants. Whether the plan will work or not is something only time will tell.

According to data from Reuters, at least 11 oil tankers have loaded crude off super-tankers near the Gulf Coast, outside of U.S. waters, and have delivered it to PBF Energy’s Delaware City and Paulsboro, New Jersey, refineries in the past five months. O’Malley believes this plan will cut costs on PBF’s growing imports of Saudi crude, which used to be shipped across the Atlantic from a pipeline terminal in Egypt.

However, the move does not come without its share of opposition from proponents of the Jones Act, a law that bans foreign-built, owned or flagged ships from transporting goods between U.S. ports. Although PBF’s shipments are not subject to the Jones Act because they involve the transferring of foreign oil from one vessel to another outside of U.S. waters, there are several other companies that would like to undertake a similar route, which could lead to violations of the Jones Act.

Critics of the Jones Act say it is antiquated. Recently, the law was briefly suspended to allow for the transportation of petroleum following the devastation left behind by Hurricane Sandy in the U.S. East Coast. However, the act still remains and has the support of U.S. shippers and other maritime interest groups.

There is only one Jones Act-compliant medium-range crude oil tanker that is currently available in the market, which, according to Ed Morse, global head of commodities research at Citigroup and a former energy expert at the State Department, is just another example of the Jones Act’s outdated regulations.

“This just shows how antiquated the Jones Act is,” said Morse.

But while many have considered the act untouchable, due to its strong backing by the maritime industry and unions, President Barack Obama has granted two waivers in the past two years in order to facilitate the transportation of fuel, the most recent instance following Hurricane Sandy.

For the oil industry and for PBF, the situation is a win-win, however. PBF gets to avoid trans-Atlantic freight rights by loading its crude in the Gulf of Mexico, while oil firm Saudi Aramco avoids paying pipeline tariffs. Yet, the plan isn’t entirely foolproof. Freight brokers argue that because the new route is so rare, it is impossible to calculate how it will cut costs in the future. In addition, the route is longer, so it may very well end up costing more in the long run since the journey from Saudi Arabia to the U.S. involves going around the Cape of Africa.

Our Cruise Ship Attorneys have decades of experience in handling many forms of Jones Act injury claims. Without the benefit and protections afforded by the Jones Act, many crewmembers would face an even harsher life at sea. If you or someone you know has a potential Jones Act claim, give us a call to discuss your rights.