American Petroleum Institute Opposes New Jones Act Rules

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Published Apr 5, 2017 11:29 AM by The Maritime Executive

The American Petroleum Institute (API), the national industry association for U.S. oil and gas companies, has released a report that predicts significant economic damage from a proposal that would require the increased use of Jones Act offshore services vessels. The report forecasts "significant loss of American jobs, reduced U.S. oil and natural gas production, and diminished revenues for federal and state government" if a rulemaking action by Customs and Border Protection reinterprets the regulations surrounding the use of foreign-flagged offshore service vessels within the U.S. EEZ. The report – and an accompanying statement calling for the immediate withdrawal of the ruling – represents a rare display of public disagreement between members of the offshore industry, with API and the International Marine Contractors Association standing opposed to industry groups representing American mariners and vessel operators.

CBP's proposed modifications would affect about 30 rulings on the transport and use of specialized oil and gas equipment on foreign-flag offshore vessels, especially the subsea construction, pipelay and heavy lift vessels used in building offshore infrastructure. The changes center on the definitions of "vessel equipment" versus "merchandise": the former can be carried between U.S. points by foreign vessels, but the latter must be carried aboard a Jones Act ship in coastwise trade. For regulatory purposes, rigs that are fixed to the seafloor within the OCS are U.S. points; if CBP redefines production equipment like risers and Christmas trees as merchandise, each piece would have to be delivered to each rig by an American vessel. API claims that these changes could cause the loss of 125,000 industry-supported jobs, cut oil and natural gas production by one fifth and reduce GDP by a cumulative $90 billion from 2017-2030. 

Energy sector consultants Calash prepared the new report for API. The consultancy predicts that if CBP's proposal is finalized, net job losses would occur due to the offshoring of U.S. supply chain elements, including the manufacturing of subsea hardware, umbilicals, topsides and modules. A foreign-flagged vessel may carry merchandise from abroad to any U.S. point, so E&P equipment made and shipped overseas could still be delivered by foreign offshore service vessels in the Gulf, regardless of the Jones Act – thereby cutting into sales for American manufacturers.

The International Marine Contractors Association – the trade association for foreign-flag offshore services firms – shares API's concerns about the effects of the change. “We understand the drive to protect US tonnage given the difficulties in the PSV market today, but the deep-water construction market represents a very different sector with very different vessels and technologies,” said IMCA CEO Allen Leatt. “There is a real risk to damaging the whole Gulf of Mexico market as the unintended consequences do not seem to have been thought through."

However, U.S. maritime industry associations broadly support CBP's proposal. “The men and women of the American maritime industry commend the U.S. Customs and Border Protection’s efforts to rightfully restore over 3,200 American jobs to the American economy and close loopholes that gave preference to foreign workers and foreign shipbuilding,” said Tom Allegretti, chairman of the American Maritime Partnership (AMP). 

The Offshore Marine Services Association, which represents U.S. offshore vessel operators, voiced support for CBP's changes and called for rapid implementation. "Foreign interests, at the expense of U.S. workers, shipyards, and ship owners, have attempted to stall and delay this proper enforcement of U.S. law, citing numerous false claims and inaccuracies," OMSA said in an editorial published Tuesday. "Further delay of the revocation of these letter rulings will only hurt American ship owners, mariners and shipbuilders."

OMSA president and CEO Aaron Smith dismissed API’s new report. “This study is a desperate attempt by companies promoting foreign workers to distort facts to enable them to continue to skirt U.S. law. The only relevant economic impact is the adverse impact that CBP’s erroneous rulings have had for decades on U.S. ship owners, mariners and shipyards,” he said. (OMSA has commissioned its own economic analysis of the effects of using only U.S.-flag vessels in the Gulf, and its report forecasts 3,200 new jobs and an additional $700 million in regional economic output.)

The National Offshore Industry Association, which represents companies in every sector of the offshore industry, has not taken a public position on the rules change. “Historically, NOIA members have been of divergent views on issues related to the Jones Act. Therefore, individual NOIA members who have an interest in this matter are encouraged to make their specific views heard,” the group said in an advisory brief last year.

Correction: This story originally cited an outdated version of OMSA’s economic impact study, which predicted that U.S. operators would build 40 new ships if the Gulf offshore services market were restricted to Jones Act vessels. The latest version of the study does not cover impacts on shipbuilding, and a spokesperson for OMSA suggests that the current fleet is sufficient to meet demand.