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The Jones Act and Increased Oil Production

The Jones Act market has seen a significant revival over the last several years, due in large part to the rapid expansion of domestic oil production. Prior to the growth of the oil industry, however, United States shipping and shipbuilding were on a sharp decline, forcing several shipyards to close down with no new ship orders to keep their doors open.

Currently, the Jones Act medium-range oil tanker fleet includes approximately 44 ships, with orders for 13 new ships to be completed between 2014 and 2016. While the majority of U.S. oil companies don’t own these vessels, they do operate and charter them on long-term contracts. As far as new builds go, ExxonMobil will acquire two new tankers in 2014, American Petroleum Tankers will receive four between 2015 and 2016, Seabulk will receive three in 2016, and Crowley will get four in 2015 and 2016.

The demand for these Jones Act tankers, which has risen with the growth in domestic oil production, does not show signs of dropping off any time soon. What’s more, the demand for tankers has resulted in a steep price increase in U.S. coastal freight rates, as well as a tight vessel supply. Southeast oil products, in turn, now have to rely on higher-priced European imports, and those higher costs are passed along to consumers.

According to the American Maritime Partnership, in response to the ever-growing urgings of many groups to repeal the Jones Act, the domestic American maritime industry increases U.S. national security at no cost to the federal government, and the domestic fleet delivers the manpower and capacity from which armed forces can draw to support military operations. The Jones Act ensures a strong maritime industry, allowing the United States to maintain its shipbuilding expertise and vibrant water transportation industry. In fact, as far as the U.S. Navy is concerned, repealing the Jones Act would “hamper America’s ability to meet strategic sealift requirements and Navy shipbuilding.”

If the Jones Act were repealed, the United States would be forced to rely upon foreign-flagged and owned vessels for transporting water commerce both within and around the country. Additionally, the 40,000 Jones Act vessels currently in operation support almost half a million American jobs and have nearly $100 billion in economic impact annually.

Said Megan McCurdy, of Poten & Partners in New York, “It is much simpler to charter a ship than to approve and build a pipeline.” She also insisted that the Jones Act barge and tanker market is adequately supplied. Additionally, she conveyed that the increase in crude oil flowing into Texas from Midcontinent will give further support to refiners in that region and the East Coast, not to mention the healthy refining margins in the Gulf South that support domestic trade fundamentals for refined products.

With recent trade talks and other individuals calling the Jones Act into question and threatening Jones Act protections, it is vital that we remember why the law was enacted in the first place, and that we pay attention to the benefits the United States enjoys from the regulations under such an important piece of legislation.

Here at The Young Firm, we advocate the rights of maritime workers, and we believe that the Jones Act is essential to the continued safety of United States seamen. If you have questions about your rights under the Jones Act, contact us today.

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