Will Jones Act Help or Hurt Offshore Drilling Expansion?

New Orleans, LAThe Jones Act is integral to the health and viability of the US shipping industry and its ability to compete with a growing number of fleets from offshore countries. However, previous interpretations of the Jones Act could be a serious setback for the industry in light of the Obama administration's decision in March to expand offshore drilling.


In its simplest form, the Jones Act states that only vessels built, owned and manned by Americans may carry cargo between US destinations in a bid to protect the American shipping industry from offshore competition. However, according to the 4/23/10 issue of New Orleans City Business, foreign vessels have managed to get a foot in the door, thanks to an interpretation of the Jones Act by the US Customs and Border Protection Agency (CBPA) that allowed for foreign vessels to transport oilfield cargo to rigs in the Gulf of Mexico.

While there are far more US vessels out there—1,200 US flagged vessels versus 90 vessels flying foreign flags, according to estimates provided by the Offshore Marine Service Association (OMSA)—the foreign fleets are growing. Last year, there were just 50 foreign vessels operating in the Gulf of Mexico. That's an increase of 40 in one year.

Critics of the current interpretation of the Jones Act fear that the [administration's decision to expand offshore drilling—originally intended to support the US shipping industry and create jobs—will be rendered ineffective if foreign operators outbid US-based operators. US fleets must adhere to stringent US safety and quality regulations, adding significant costs that foreign operators can bypass.

Ken Wells, president of OMSA, is concerned that "a lot of the perceived advantages of this offshore expansion are going to bypass the very communities that are counting on it."

But the tide is beginning to turn. A previous customs ruling that allowed BP to transport a valve structure to a drilling rig in the Gulf of Mexico using a foreign vessel was reversed in 2008 following a groundswell of opposition from the US maritime industry. The CBPA also reversed some 20 prior rulings before placing the entire Jones Act under review in September of last year.

However, the oil industry camp says that while their use of US vessels is a matter of record, foreign specialty vessels are integral to the industry. Robin Rorick, director of maritime and security issues at the American Petroleum Institute, fears that taking foreign vessels out of the mix altogether will significantly slow the expansion of offshore drilling, especially if the change happens too quickly.

Oil companies are concerned that work will be stalled while the industry waits for US specialty vessels to be built. "We're not talking about putting a hull and a bridge together and cutting it loose," Rorick said.

The president of a deepwater tug company has countered that such a position is akin to a tempest in a teapot. "To suggest that there aren't the same vessels here is just being dishonest," said Bill Kearney, who heads up Dolphin Marine International. "We're talking about the USA, a global superpower and a leader in oil and gas exploration."

Like many in the US shipping industry, Kearney is depending on the Jones Act and maritime law to limit the number of foreign vessels that "find a loophole and invade the marketplace," he said. "It would be next to impossible for American services to compete with foreign entities. It would be an almost certain death sentence."