US 'stands ready' for shippers' Jones Act waiver requests to meet Southeast fuel shortages

The US Department of Homeland Security "stands ready" to review shippers' waiver requests to move fuel from the Gulf Coast refining hub to the East Coast if they can demonstrate insufficient capacity on Jones Act-qualified tankers, the White House said May 12.

The Department of Transportation's Maritime Administration concluded a May 11 assessment of Jones Act fleet availability, the White House said, without detailing its findings.

A ransomware attack forced Colonial Pipeline to halt all operations May 7. The 5,500-mile system connects the Houston refining hub to New York Harbor, supplying about 45% of all the gasoline and diesel fuel consumed on the East Coast.

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US 'stands ready' for shippers' Jones Act waiver requests to meet Southeast fuel shortages

Major cities in the US Southeast were reporting severe outages at gasoline stations as panic buying exacerbates lower refined product deliveries from Colonial.

Energy Secretary Jennifer Granholm in a White House briefing May 11 sounded confident that Colonial could restore full operations within days, and she urged drivers not to hoard supply.

While spot and futures gasoline markets were relatively subdued May 12, prices further down the supply chain have jumped, reflecting tightness closer to the retail level. For instance, regular unleaded rack prices at Norfolk, Virginia, averaged $2.16/gal May 12, up 11 cents from May 7, when Colonial first went down. Over the same period, the NYMEX front-month RBOB contract has climbed just 3.5 cents.

USAC gasoline stocks at 64.6 million barrels the week ending May 7 were 3% below the five-year average, US Energy Information Administration data shows. Retail shortages this week will likely cause those inventories to draw, although Kpler data shows waterborne imports climbing this week and next.

S&P Global Platts Analytics said the closure will have a ripple effect on gasoline, diesel and clean tanker freight rates despite this being a potentially short-term event.

VESSELS FIXED IN CASE OF WAIVER

Multiple charterers were heard entering the foreign-flagged spot tanker market May 11-12 with US Gulf Coast-loading cargoes and discharge options on the US Atlantic Coast, a move normally prohibited by the Jones Act for foreign flagged spot tankers.

Shipping sources reported GE Warren looking for a tanker to load May 16-17 with discharge options on the USAC and in the Caribbean, and Koch was reported working a cargo for May 18-20 loading with options to discharge on the USAC, in East Coast Mexico, and in Europe.

GE Warren covered its cargo early May 12 on the Medium Range-sized tanker Agioi Fanendes, with the inter-United States priced at lump sum $900,000. Shipowners said the rate for the inter-United States run was slightly lower than other spot rates talked May 12, with USGC-USAC prices reported north of lump sum $1 million for a foreign-flagged ship.

Though GE Warren placed the Agioi Fanendes on subjects, the ship could still fail depending on multiple factors. Shipping sources said the cargoes working with inter-US voyage options were dependent on a Jones Act waiver from the government, and therefore included additional options for exports to other countries in case a waiver is not announced.

PANIC-BUYING

Regional fuel shortages are spiking in Southeastern states located between the Gulf Coast and New York Harbor fuel and refining hubs.

Half or more fuel stations in North Carolina, South Carolina, Georgia and Virginia are reporting lack of supply, and the situation is worse in major cities like Atlanta and Charlotte, according to GasBuddy.

Panic-buying and hoarding are exacerbating the situation, industry representatives said. They appealed to the White House to issue a blanket Jones Act waiver, not just to grant individual waiver requests, to move more fuel to East Coast ports. There is a logistical problem, not a supply shortage, they said.

"This is where President Biden's team can make a big difference," said Susan Grissom, chief analyst for the American Fuel & Petrochemical Manufacturers. "If you use a case-by-case basis, it lengthens the process."

Although the Biden administration waived hour limits on truckers making fuel deliveries, the challenge is worsened by a long-standing trucker shortage that was exacerbated during the ongoing coronavirus pandemic, and even more so now with the spike in demand from the Colonial outage and panic buying.

"If we had all the drivers we need right now, this would be less of an issue," said Ryan Streblow, interim president of the National Tank Truck Carriers. "We definitely have a driver shortage, and it's growing exponentially because of this."

Jeff Lenard, vice president of the National Association of Convenience Stores, said the average fueling station sells 5,300 gal/d of gasoline and diesel, and most can store at least 10,000 gallons of fuel. However, in some cases, demand has spiked as much as five times from panic-buying, causing much of the outages, he said.

"We are seeing outages at stores not impacted by the Colonial Pipeline, so there definitely is a demand component there," Lenard said, adding that getting Colonial mostly back online by the end of the weekend and having the panic buying subside will solve a lot of the problems and expedite a return to normalcy.

EXPANDED FUEL WAIVER

The US Environmental Protection Agency expanded late May 11 an emergency fuel waiver allowing 12 states and Washington to sell off-spec gasoline through the end of the month to alleviate shortages caused by the Colonial Pipeline shutdown.

The expanded waiver runs through May 31 and covers Alabama, Delaware, Washington, Georgia, parts of Florida, Louisiana, Maryland, Mississippi, North Carolina, Pennsylvania, South Carolina, Tennessee, and Virginia.

The waiver allows sales of summer- or winter-grade gasoline with vapor pressure under 13.5 psi, and it allows any fuel handlers along the supply chain to comingle reformulated and conventional gasoline supplies as needed.

"I have determined that an 'extreme and unusual fuel supply circumstance' exists that will prevent the distribution of an adequate supply of compliant gasoline to customers," EPA Administrator Michael Regan said in a letter to governors.

The DOT separately issued late May 11 a new order allowing trucks to carry overweight loads of gasoline and other fuels on highways to move more supply along Colonial's route.

'POLITICAL COST'

The 1920 Jones Act requires all goods shipped between two US ports to be carried on ships that are US-built and US-flagged, with majority US owners and crew.

ClearView Energy Partners predicted Jones Act waivers could have a more significant effect on markets than EPA waivers, but they "come at greater political cost" in coastal areas that are home to maritime industries.

The Trump administration granted temporary Jones Act waivers in 2017 after Hurricane Irma hit Florida and separately after Hurricane Maria hit Puerto Rico.

The American Maritime Partnership, a trade group that lobbies to protect the Jones Act, said it does not object to a "targeted approach to issuing waivers when there is a legitimate need and when such action does not reward those who would utilize foreign vessels to game the system at the expense of American jobs and national security."