U.S. Rep. Ed Case, D-Hawaii, this week asked President Joe Biden to grant a waiver from the federal Jones Act to allow Hawaii to more easily import oil and gas products from mainland ports after Biden signed an executive order banning Russian energy imports. Also, Case authored a bill to give the state a standing waiver for future bans and shortages.
While supporting sanctions on Russia and the oil ban, Case said he’s worried about the ramifications in the islands.
On Thursday, Hawaiian Electric warned that due to rising oil prices and Russia sanctions, in coming months residential customers will see a price hike of about 10% on Oahu and 20% on Hawaii island and in Maui County.
The Jones Act, also known as the Merchant Marine Act of 1920, requires vessels transporting cargo between two U.S. ports to be U.S.-flagged and built. But today there are fewer than 100 Jones Act vessels in the country — including containerships of Hawaii shipping companies. The available tankers are largely committed to routes that don’t include Hawaii.
An upshot is that Hawaii has come to rely on foreign sources for much of its oil and gas. In recent years Russian imports have accounted for as much of one-third of Hawaii’s oil imports.
“Without action, the people of Hawaii will be asked to bear consequences far out of proportion to those of most other Americans,” Case wrote in a letter to Biden on Tuesday.
“The best replacement for Russian oil imports to Hawaii is domestic supply, and the transport of that supply 2,500 miles to our remote island state is subject to the Jones Act requiring any such transport to occur exclusively on a very limited number of domestic vessels.”
Case continued, “As a result, the costs of such shipping, even if it were available domestically to start with, would be higher by a number of multiples than transport on the plethora of non-U.S. flagged specialty vessels. These costs would be passed on in price increases that are already among the highest in our country and would directly affect our national defense headquartered in Hawaii, our economy, and our communities.”
Before World War I the U.S. relied on a combination of U.S.- and foreign-flagged vessels for both international and domestic shipping. But when the war broke out, foreign ships withdrew from American routes to aid war efforts in their own countries. The sudden shortfall sent shock waves across U.S. ports and domestic trade routes.
After the war Congress enacted the Jones Act in hopes of reducing America’s reliance on foreign mariners. Lawmakers hoped the act would ensure stable supply lines within the United States while also ensuring an inventory of U.S. merchant marine vessels and trained American mariners that could be tapped to support U.S. operations in the event of another conflict.
“That’s all well and good, but especially when it comes to fuel, it just hasn’t done that for Hawaii,” said Malia Hill, policy director at the nonprofit Grassroot Institute of Hawaii. “It’s had the paradoxical effect of making Hawaii way more vulnerable, because we have to rely on foreign fuel.”
With relatively few Jones Act-compliant tanker vessels available to bring fuel between U.S. ports, Hawaii has relied on foreign tankers working in the Pacific and Indian oceans, which cannot legally pick up oil from American ports and can only deliver oil from overseas.
“The majority of the oil we bring in is from international markets because of just the practicalities of it,” said Hill.
The only oil refinery in Hawaii is operated by Par Hawaii Refining LLC. Before the Russian oil ban was announced, Par Hawaii’s parent company, Par Pacific, announced it would voluntarily cease buying Russian oil. Par executives have said they’re looking for alternative oil sources and maintain they do not expect Hawaii to suffer disruptions.
But ongoing armed conflicts have made international oil supply chains prone to disruption.
In 2019 the majority of imported crude oil to Hawaii came from Libya (57%), followed by Russia (34%). But in 2020, Libyan warlord Khalifa Haftar seized oil fields in the country with the help of Russian Wagner Group mercenaries, disrupting global markets.
That year Libya provided only 16% of Hawaii’s oil, while Russia remained at 34%, becoming Hawaii’s top overall source for 2020. The disruption forced Par to turn to other sources, including the war-torn Republic of Congo and others, to make up the difference for Hawaii’s needs.
Under the Jones Act the White House has the authority to approve waivers. In 2017 then-President Donald Trump temporarily waived restrictions to allow aid to be shipped to Puerto Rico after Hurricane Maria. And in May, Biden issued a waiver allowing foreign tankers to transport fuel between East Coast ports after a cyberattack on the Colonial Pipeline caused serious supply disruptions.
Retired Coast Guard Commandant Adm. Paul Zukunft said that an exemption for fuel could be sensible for Hawaii, particularly if using foreign tankers would make it easier to access domestic products.
The retired admiral was the incident commander during the 2010 Deepwater Horizon spill in the Gulf of Mexico, during which he asked for an exemption to get hold of specialty vessels to support the relief effort.
“There’s big difference between an exemption and an outright repeal because then, the whole house of cards comes down with our maritime industry,” said Zukunft.
Critics of the Jones Act accuse it of giving U.S. shipping companies a monopoly that allows them to raise prices. But Zukunft said it helps ensure fair labor practices for American mariners. International shipping companies, which often have opaque structures, are infamous for underpaying workers and tax evasion.
“These are overhead costs that most businesses here in the U.S. accrue, whereas foreign entities are exempt from that. So, it does give them that unfair advantage,” said Zukunft.
But even with the Jones Act, the American shipping and shipbuilding industries have been struggling. According to a 2019 report by the Congressional Research Service, the number of U.S.-flagged oceangoing ships steadily declined to 87 from 257 during the 35 years spanning 1980 to 2015. However, between 2015 and 2018 the count went up to 99.
A 2009 National Defense University report comparing U.S. shipbuilders to those in Asia found that Asian shipyards offered lower prices, were more efficient and had higher industry best‐practice ratings than American ones. Another NDU report, in 2016, asserted that U.S. shipbuilding is an average of 20 years behind international shipyards in regard to use of advanced technology.
Hill said, “The world has changed, trade has changed, the industry has changed in the last hundred years or so.” She added, “It makes sense to recognize those facts and update the Jones Act to reflect them.”
In addition to appealing to Biden, Case also wrote to Matson Inc. CEO Matt Cox and Pasha Group CEO George Pasha. The two men’s respective companies dominate shipping from West Coast ports to Hawaii under Jones Act regulations. Case asked them to throw their support behind his request to Biden as well as the bill.
“This is a critical time to set aside the endless debate over the pros and cons of the Jones Act both nationally and as applied specifically and, in my view, unfairly to our remote island state,” Case wrote.
“It is crystal clear that in this specific crisis the effects of the Jones Act on Hawaii are especially severe and we should be able to agree that of all times this is one in which the Jones Act should be waived for the duration of our necessary ban on Russian oil.”
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