28 Feb 2014 More

Soaring Gas Prices Hit East Coast Hard

posted by Brown Books @ 07:50 0 Comments

Image of gas prices at the pump
Record-setting cold weather has brought propane supplies down to their lowest levels in decades.  For those living on the East Coast, this means soaring gas prices.  But cold weather is not the only culprit.  A 94-year-old law is also sticking it to consumers.

As new supplies of gas come flowing out of Texas fields, the Jones Act, which prohibits non-US cargo ships from delivering goods from one US port to another, means people on the East Coast are forced to buy what they need from Europe.  The problem?  That means they can be paying as much as $100 per metric ton more.

“It’s kind of a crazy thing, where we’re sending ships to Europe and then in return, at some point in time, Europe is sending propane cargoes back to us,” says Peter Fasullo of EnVantage Inc. in Houston, Texas “You have to think, isn’t there a more efficient way of doing this?”

The lack of organization is just another example of how the shale boom in the US, while producing at record levels, is unable to get that product to market.  Enterprise Products Partners in Houston believes now is the time to revisit the Jones Act.

The Jones Act

The Jones Act is also having an adverse effect on US jobs.  Vessel owners, American shipyards, and labor unions alike all agree.  The demand for propane has skyrocketed this winter, and while the supply is abundant, producers have simply outrun transporters.  Quite simply, the pipelines are full.

Of those 3 percent of consumers who use propane as their main source for heating on the East Coast, they are expecting to pay as much as $206 more on average.  That’s a spike of 11 percent.

Stockpiles of propane have dipped down to 1.6 million barrels for the region.  That’s the lowest they’ve been since 1994, this according to the EIA.  Levels reached 1.68 million barrels last week and are dropping fast.

Fixing the problem

“If you didn't have the Jones Act, you could have had this thing resolved pretty easily by moving product off the Gulf Coast into the Northeast,” says James Teague, COO of Enterprise ProductsEnterprise runs propane export and transportation facilities.  “We don’t have that in our toolbox.”

A look at the numbers says it all.  As of Feb. 24, the price for a ton of propane in Houston, Texas cost $673.  Figure in that it costs about $18 per ton to transport the supply by tanker to Philadelphia, and that comes out to $691 per ton.

Compare that to the price for a ton of propane coming from Europe.  The price for a ton of propane in NW Europe is currently $785.  Add another $28 per ton to ship that to the same port in Philadelphia and that comes out to $813 per ton.  That’s a $121 difference, or 18 percent, all because of the Jones Act.

Reasons for the Jones Act

The Jones Act was first signed into law back in 1920 and requires that all cargo moving from one US port to another must be on either a US-built vessel, owned or crewed.  A limited supply of such ships has driven the demand for foreign imports.

US authorities did try and free up the flow of the much-needed propane by ordering companies like Enterprise to make propane shipments a priority.  The government even went as far as to tell truck drivers to work longer hours.

“We have wanted Jones Act waivers for ships from Houston to New England,” says Jeff Petrash, vice president of the National Propane Gas Association. “It would have greatly taken the pressure off the Northeast and supplied New England with domestic propane rather than the foreign propane.”

According to the US Maritime Administration, a government agency, the Jones Act has not been a factor when it comes to depleted supply in the US Northeast.

What about emergency waivers?

“Both US-flag and non-U.S.-flag vessels were fully employed,” says Kim Strong, spokeswoman for the Maritime Administration.  “The Jones Act supports US-flag vessel operators, US mariners, and US shipyards vital to this country’s economic and national security.”

Waivers for the Jones Act have been issued before.  In the aftermath of Superstorm Sandy, non-US-flagged vessels were permitted to deliver much-needed crude oil supply from America’s Gulf Coast to the Northeast on non-US registered ships.

The recent oil and gas boom in the United States has made the country more self-sufficient when it comes to energy.  In fact, recent data shows that America supplied 86 percent of its own energy in the first 11 months of 2013.  That’s the highest percentage since 1986.
In the last four years, products from petroleum and natural gas have increased by 39 percent.  In 2012, the USA even became a net exporter of fuel.

Rising exports

Between 2009 and 2013, US exports of fuel more than tripled.  In the first seven weeks of 2014, exports have averaged 373 mbopd.  At the same time, the country as a whole is adding more exports. The American East Coast has increased its need for imports to 73 mbopd.

“We were shipping propane out of the south side and bringing it in on the north side. It’s ridiculous,” says Bill Smith, a wholesale fuel purchaser.  “The Jones Act, which is the most stupid law ever on books, was good for its time, but it’s a little out of date.”

Among industry insiders, it’s hard to find any who believe the Jones Act should remain intact in its current form.  At the least, the law should be revisited and retailored to fit today’s changing energy landscape.  Few however see that happening anytime soon given the current political climate in Washington DC.

“There’s going to come a point where things have to change,” says Charlie Papavizas, a partner and specialist in maritime law at Winston and Strawn LLP.  “There’s going to be so much oil and so much gas, it’s like a tidal wave of issues. But for the foreseeable future I don’t see the law changing.”

Also from Brown

If you're in the oil business then you know just how important your tools are. Come check out all the great tools at our news tools division site, BrownToolBox.com.

If you like keeping up with news and events, we invite you to come see our new oil & gas media site, BrownPetro.com.

Brown Book Shop, est. in 1946, is America's leading technical bookstore.  Brown Knows Books.

0 Comments:

Post a Comment

Subscribe to Post Comments [Atom]

<< Home