|
In September 2017, Hurricane Maria devastated Puerto Rico’s electrical power system. Today, Puerto Rico continues to struggle to rebuild its power grid, and the US Department of Energy has suggested that the island territory utilize more liquid natural gas (LNG) to support its energy plan. This proposal sounds enticing given that US production and exports of LNG to other countries are booming.
However, Puerto Rico already imports LNG, and has done so for many years — but not from the mainland. In fact, between 2005 and 2015, the island received less than 1% of its LNG imports from the US, instead sourcing those imports from Trinidad and Tobago, the United Kingdom, Norway, Spain, Guinea, and other countries. This is especially odd given the US average LNG price is currently 42% lower than the average European, North American, and South American prices for LNG, and has been similarly lower over the past decade.
The most plausible reason for the current lack of US LNG shipments to Puerto Rico is that the Jones Act makes it very expensive to transport LNG, if not functionally impossible.
The Jones Act is a 1920 law that extended long standing restrictions on domestic trade between US ports to US territories, including Puerto Rico. The legislation requires that all goods shipped between two US ports be transported on vessels that are US built, US crewed, US owned, and US registered. These restrictions substantially increase the cost of shipping goods by water and island territories like Puerto Rico, as well as Alaska and Hawaii, have little choice but to accept what some have estimated amounts to a partially disguised 7% tax on imports from the US.
The Jones Act’s impacts on Puerto Rico often gain attention when the US is providing aid to the island in the wake of hurricanes such as Maria. However, the costs the Act imposes also have systemic and wide-ranging impacts on the structure of the island’s economy. In this case, because the US mercantile fleet includes no vessels capable of shipping liquid natural gas anywhere, the Jones Act effectively prohibits all LNG exports from the United States to Puerto Rico. As a consequence, in 2018 and the first four months of 2019, all of the island’s gas had to be obtained from foreign sources and transported on foreign ships. Given the substantial price advantage associated with LNG sourced from the United States, Puerto Rico has requested a waiver from the Jones Act. However, the waiver was not granted.
Some in Congress have suggested extending Jones Act-like restrictions on all LNG exports. In the short term this would prove difficult, as the US fleet has no ocean going vessels capable of transporting LNG.
Further, as recent studies from AEI show, restrictive policies like the Jones Act and Cargo Preference have historically been ineffective at meeting the mercantile and defense needs of the nation. This is especially the case in Puerto Rico, where the adverse impacts of the Jones Act are most acutely obvious.
The most plausible reason for the current lack of cheap US liquefied natural gas (LNG) shipments to Puerto Rico is that the Jones Act makes it very expensive to transport LNG, if not functionally impossible.
|
