First US LNG tanker begins operations, will supply Puerto Rico

US-based shipping company Crowley said on March 18 that it began operations of the first US LNG tanker capable of delivering supply from the Lower 48 states to Puerto Rico, helping to meet the island's gas demand for power generation without running afoul of a century-old law that otherwise restricts such shipments.

The American Energy tanker was moored at Cheniere's Corpus Christi LNG terminal in Texas March 18, S&P Global Commodities at Sea(opens in a new tab) data showed.

Crowley and Spain's Naturgy -- a long-term offtaker at Corpus Christi and Cheniere's flagship Sabine Pass LNG terminal in Louisiana – have entered a multiyear agreement for regular delivery of US LNG to an import facility that Naturgy operates in Penuelas, Puerto Rico, on the southern coast of the US territory.

The ship has a capacity of 130,400 cu m, or enough energy to power 80,000 homes for a year, Crowley said.

Puerto Rico Gov. Jenniffer González-Colón in a statement described the entry of the American Energy into service as "a significant step for fuel supply reliability in Puerto Rico for our energy grid, which will greatly benefit our people."

"This partnership is an initiative to act using existing regulations to increase access to a US-based LNG source that expands our options for the stabilization of our energy grid, as we work towards providing our residents and businesses a more consistently reliable power generation source," González-Colón said.

The US is the world's top LNG supplier but not a major importer, although it will sometimes bring in cargoes to meet demand in the pipeline-constrained Northeast.

Potential shipments of US LNG between US ports are limited by the 1920 Jones Act, a protectionist law that 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.

The US does not have any LNG tankers that meet that criteria. But Crowley was able to reflag the American Energy -- constructed in France 31 years ago – as part of a Jones Act exemption that allows ships built before 1996 to undergo this process, according to Andres Rojas, LNG analyst with S&P Global Commodity Insights. The ship will be crewed by US mariners, Crowley said.

It's unlikely that there will be a rush to reflag other older steam tankers like the American Energy because of limited LNG demand from other markets affected by the Jones Act, Rojas said.

But for Naturgy, the ability to utilize the American Energy comes after its LNG contracts in Trinidad -- the largest supplier to Puerto Rico in recent years -- have ended, Rojas said.

"This contract strengthens our presence in the global LNG market, particularly in the United States, and allows Puerto Rico to obtain a stable and competitive energy supply route," Naturgy's Jon Ganuza, general manager of supply and wholesale markets, said in the statement with Crowley.

In addition to Naturgy, Puerto Rico also sources LNG from US-based New Fortress Energy via the developer's Altamira LNG export terminal offshore Mexico. Feedgas for that project is sourced from the US, but New Fortress has a ruling from the US Customs and Border Protection finding that LNG produced at Altamira will be a "new and different product" from the US-sourced pipeline feedgas, meaning the LNG can be delivered back to the US without violating the Jones Act.