What’s one simple thing the federal government could do to strengthen the U.S. economy and Texas oil companies? Repeal an outdated law known as the Jones Act.
You probably heard about it after Hurricane Irma slammed into Puerto Rico. It restricted the amount of goods from being transported to the island and delayed recovery efforts. But it also hurts oil companies and refineries. So what is the Jones Act?
Passed in 1920, it requires that all shipping between domestic ports be carried by U.S.-flagged and built ships. They have to be at least 75 percent owned and crewed by American citizens. While it has protected a few domestic ship companies and sailors’ unions, it has hurt oil companies and refiners – especially after the crude oil export ban was lifted by Congress and President Barack Obama in 2015.
That’s because the Jones Act makes it more expensive to transport crude oil from one American port to another. To ship Texas crude to Europe or Asia, it’s only $2 per barrel; it costs $7 per barrel to ship it to Philadelphia. In many cases, it’s less expensive for American crude oil to be processed at foreign refineries and gasoline to be shipped back to the United States.
So if you were wondering why Boston buys its liquefied natural gas from Russia instead of from Texas, feel free to blame the Jones Act.
This outdated law has distorted the crude oil markets and taken business away from American refineries. If the Jones Act were repealed, more oil could be refined here at home. And if the demand was sufficient, one or more new refineries could be buil, which would be a boon to the Gulf Coast.
From 2000 to 2017, the number of privately-held, large U.S.-flagged ships dropped from 193 to 99. Compare this number to thousands of modern, foreign-flagged vessels that transport crude oil and other goods to and from American ports. If foreign ships were allowed to haul crude oil from one U.S. port to another, they could do it faster and cheaper.
Like all protectionist legislation, the Jones Act has harmed the economy and ultimately will be found to have harmed the companies it was designed to help, because they have been less competitive. These protected American firms haven’t had to compete for business, so they didn’t innovate while foreign shippers got more efficient and became more competitive.
Most Americans are tired of politics as usual, where big, politically-connected companies benefit at the expense of hard-working citizens. History shows us that when the free market is allowed to operate, consumers always benefit. You see an increase in competition and a decrease in prices. Repealing the Jones Act would lower gasoline prices, and households and businesses would have more money to spend and invest. Puerto Rico, Alaska and Hawaii would be much better off as well.
The world is much different than it was almost 100 years ago, when the Jones Act was passed. Technology, innovation and the speed of transportation have vastly improved. We don’t need a law that protects just a few shipping companies and maritime unions at the expense of American consumers and business owners.
Repeal would give the American economy and Texas oil companies an economic shot in the arm. Encourage your senators and Congress members to repeal the Jones Act, and do it now.
This article was originally published in the Houston Chronicle, February 20, 2018.