Paying Too Much for Natural Gas? Thank the Jones Act.
The federal law protecting the shipping industry from competition strikes again.
The northeastern U.S. is in the midst of a natural gas shortage that a terrible, cronyist federal law is making it harder to solve. It appeared in April that President Donald Trump was thinking of easing the problem, but the latest news suggests otherwise.
The issue here is the Jones Act, a 100-year-old protectionist law that requires cargo being transported between U.S. ports to be put on U.S.-built ships and crewed by Americans.
Natural gas being produced in Southern states could be transported by ship up to the north. There are not enough pipelines to deliver it by land. There also aren't enough Jones Act–compliant ships to comply with the law and deliver the gas domestically.
This has led to a particularly absurd outcome. Despite the fact that we produce our own natural gas, Massachusetts was left with little choice but to import it from Russia last year in order to meet demand. Bloomberg reports:
Oil industry leaders argue that the Jones Act restrictions undermine Trump's American "energy dominance" agenda, by encouraging imports of foreign oil and gas despite abundant supplies inside the U.S. Russian LNG was delivered to Massachusetts last year to help supply consumers in the Northeast U.S. And inland oil refiners argue requirements to use U.S.-flagged vessels boost the costs of obtaining raw crude, effectively subsidizing foreign competitors.
"The Jones Act is completely contrary to the president's energy agenda, in large measure because it encourages the importation of energy—diesel from Europe, LNG from Russia—rather than the use of energy made in America and developed and refined by American workers," said Mike McKenna, a Republican energy strategist. "If you're in favor of the Jones Act, you're in favor of damaging consumers and helping very specific interests line their pockets at consumers' expense."
Those "very specific interests" are the domestic shipping industry and the lawmakers who represent them. They continue to prop up the law despite the fact that it punishes American consumers, particularly those who live in areas that depend on ports to receive goods. Hawaii and Puerto Rico pay exorbitant amounts of money to ship in goods from the mainland. It costs more to ship something from the continental U.S. to Puerto Rico than to nearby Jamaica, thanks to the Jones Act.
As with tariffs, the Jones Act doesn't really accomplish the effects its supporters say it does. As the Cato Institute's Colin Grabow notes, the Jones Act's rules make it cost five times as much to build ships in the United States, so it's just not worth it. The end result of the law has actually been a decline in domestic shipping even as the economy grows.
Trump had reportedly been considering a 10-year waiver from the Jones Act for natural gas shipping. But according to the Washington Examiner, Trump has now told Louisiana's Republican senators that he won't follow through.
As you read the defense of the Jones Act by these two Louisiana lawmakers below, again, keep in mind that one of the results of this law was that Massachusetts had to import gas from Russia:
"We cannot let the United States become dependent on foreign countries to transport energy and critical products within the United States," [Sen.] Bill Cassidy said. "The Jones Act is essential to preserve our domestic shipping industry and protect our national and economic security."
Sen. John Kennedy, also of Louisiana, released a similar statement, saying "after talking to President Trump, I am confident that he realizes how important the Jones Act is to Louisiana's maritime industry and that no changes will be made."
Other lawmakers who recognize that the Jones Act is essentially forcing the entire country to subsidize the private shipping industry have been trying to get rid of the antiquated law, but it's got a tough road ahead.