By ISAAC AMSDORF
US lawmakers are making a fresh push to require exports of
natural gas to be carried on American ships.
Proposals from Representative John Garamendi, a Democrat from
California, and the Department of Transportations
Maritime Administration would require exports of liquefied
natural gas to use US-made and -crewed ships. The shipping
industry expects the moves to gather bipartisan support, said
Clay Maitland, chairman of the Merchant Marine Policy
Coalition, an industry
While the changes would make LNG exports more expensive than
using foreign tankers because no such US-flagged vessels
currently exist, supporters of the effort say that the US
merchant fleet is vital to national security. The proposals
are gaining attention amid calls to ship gas to Europe
to offset possible
reductions in supply from Russia.
If youre going to export it, lets do that
in a way that further strengthens the American economy by
exporting that gas on American-made ships with American
crews, Garamendi, 69, who sponsored the proposal as an
amendment to the Coast Guard Reauthorization Bill, said in a
Im not here to make the gas industry happy --
Im interested in building the American economy and the
manufacturing sector, of which the shipbuilding industry, for
strategic defense purposes, has to remain strong, he
In effect the moves would put exports of the fuel -- and
later, possibly crude oil -- under the same rules that
restrict domestic cargoes to US ships.
The fleet of ocean-going cargo ships flying the US flag has
shrunk to 179 from more than 1,000 in the 1950s, according to
the Maritime Administration, part of the US Department of
Transportation. The industrys supporters say the US
needs American-owned and -crewed ships available in the event
of war or national emergencies.
US ships cost more to operate because of environment
al and labor rules.
Most of the worlds vessels are registered in countries
such as Panama, Liberia and the Marshall Islands, known as
flags of convenience.
The government is spending $186 million a year through 2015
to support 60 US ships in international trade (including the
Maersk Alabama, the container ship helmed by Tom Hanks in
last years movie Captain Phillips),
according to the Maritime Administrations website. That
amounts to a subsidy of about $8,500 per day.
Another way the US keeps merchant ships under its flag is by
reserving certain cargoes for them. Since 1920, a law known
as the Jones Act has required all cargoes between domestic
ports to travel on US-flagged, -owned and -crewed vessels.
Now, with exports of LNG and possibly crude oil poised to
increase, some of those cargoes could be set aside for US
ships as well.
New cargoes for US flag ships are the key, and the
sector ripest for that is energy exports, specifically LNG,
even if it is just a small percentage that is required to be
carried aboard a US-flag vessel, Paul Chip
Jaenichen, acting maritime administrator, said at a symposium
in Washington on Jan. 16. The Maritime Administration will
develop a national maritime strategy by early next year,
spokesman Michael Novak said.
Garamendis amendment would phase in a requirement that
all LNG exports from the US would be on US-built and
US-flagged ships with American crews. While he withdrew it
anticipating defeat, Garamendi said he is committed to
reintroducing the proposal on the House floor after garnering
Representative Duncan Hunter, 37, the California Republican
who chairs the House Subcommittee on Coast Guard and Maritime
Transportation, wants to examine
opportunities to expand the US fleet, including LNG tankers,
spokesman Joe Kasper said in a statement.
This is going to be a great 50 years with the energy
that we have in this country, Hunter said Jan. 14 at
the Maritime Administrations symposium. If we
harness that, this could be a great time for the maritime
industry. Were saying, hey, if youre going to get
it out of US soil and youre going to export energy out
of the US, maybe it ought to be on US ships with US
A US-flag oil tanker costs about $21,000 per day to operate,
compared with $9,500 for a comparable international ship,
estimates Navigistics Consulting. Accounting for fuel and
financing costs, a US ship is about 25% more expensive, said
David St. Amand, president of the Boxborough,
Massachusetts-based research company.
That still only increases the cost of an LNG tankers
voyage from the US Gulf to Japan by about 5%, according to
Pat Calahan, a broker and project
consultant at MJLF &
Associates in Stamford, Connecticut. The effect on profits
from the trade would be even smaller.
US exports of LNG are appealing because the fuel costs about
three times less than in Japan, the biggest importer. Japan
paid $16.80/MMBtu in January, compared with $4.94 on the US
Gulf Coast, according to data from Poten & Partners, a
New York-based shipbroker.
Exporters need government approval to sell LNG to countries
that lack free-trade agreements with the US. The Energy
Department has approved six permits so far. The first is for
Cheniere Energy at Sabine Pass, Louisiana, scheduled to start
shipping 9 million tpy in late 2015. US export capacity will
rise to 62 million tons by 2020, according to Morgan Stanley.
Lawmakers are calling on the Obama administration to
accelerate approvals to help Europe
an allies cope with the
possible loss of Russian supplies amid tensions in Ukraine.
Now is the time to send the signal to our global allies
that US natural gas will be an available and viable
alternative to their energy needs, House Energy and
Commerce Committee Chairman Fred Upton, a Michigan
Republican, said in a statement.
Exports of crude oil have been restricted since 1975. Last
year, the American Petroleum Institute, which represents the
oil industry in Washington, began preparing to challenge the
ban. ExxonMobil and Senator Lisa Murkowski of Alaska, the
senior Republican on the Energy and Natural Resources
Committee, support changing the rules.
As Congress debates the issue, requiring the cargoes to move
on US tankers could emerge as a condition, according to
Winston & Strawn, a law firm specializing in shipping.
The cost of using US ships would effectively stop any exports
of LNG or crude, said Charles Drevna, president of the
American Fuel & Petrochemical
industry group whose members include ExxonMobil and Chevron.
The 94-year- old law that makes American consumers pay more
for domestic shipping should be loosened, not extended to
exports, he said.
The Jones Act needs modifying, and it certainly does
not need modifying to make it more restrictive, Drevna
said in a phone interview. Were in a global
market and we have to compete globally.
Debating the Jones Act shouldnt interfere with
realizing the benefits of LNG exports now, said Robert
Sumner, a spokesman for Americas Natural Gas Alliance,
an industry group in Washington.
US shipyards havent built an LNG tanker since 1980. Ten
carriers built by General Dynamics and Newport News
Shipbuilding between 1977 and 1980 were registered under
other flags such as the Marshall Islands, according to
Clarkson, the worlds largest shipbroker.
South Korean shipyards charge more than $200 million to build
a new LNG carrier in about three years, Clarkson data show
US-built oil tankers cost about five times as much as Asian
counterparts, according to Drewry Maritime Research, an
industry consultant. Garamendi said shipyards told him they
could get the job done.
The Shipbuilders Council of America, an industry group in
Washington, has no position on the proposal, it said in an e-
mailed statement today.
General Dynamics NASSCO shipyard in San Diego could
build LNG carriers, said Peter Brown, manager of commercial
development. He declined to discuss costs. The yards
backlog of nine commercial vessels is full through 2016, he
American shipyards are already building more US oil tankers
to keep up with surging domestic output. Jones Act-
qualifying tankers command record rates close to $100,000 per
day, according to MJLF. There are about 45 Jones Act tankers
and 11 more on order, Calahan said.
The shortage of tankers creates bottlenecks, contributing as
much as 15 cents/gal to gasoline prices, estimates Fadel
Gheit, an analyst at Oppenheimer & Co. in New York. Last
month the East Coast had to pay more than $100/ton extra to
buy propane from Europe
because there arent
any Jones Act tankers that could deliver domestic supplies
The Jones Act is critical to American jobs and national
defense, according to the American Maritime Partnership, an
industry group in Washington. The organization doesnt
have a position on the exports requirement, it said in a
That is the idea of the moment, said Maitland of
the Merchant Marine Policy
Coalition. The US fleet
is withering on the vine, and the public perception is
something has to be done.