Alaska Poised To Beg for Relief From Crippling Federal Shipping Restrictions

The Jones Act keeps energy-hungry Alaskans from using their own natural gas.

Alaska is a cold state where residents need energy to keep the chill at bay. Fortunately, the state is blessed with natural resources, including abundant oil and natural gas that can help satisfy that need. Unfortunately, as I've written before, a nationalistic, century-old law requires that shipping between American ports be conducted only by U.S.–built and –flagged ships. And there aren't any liquid natural gas tankers that satisfy the requirement. Now Alaska officials are seeking a waiver so they can use their own resources to resolve a growing energy crunch.

Resource-Rich but Starved for Energy

"Alaska is facing an acute energy shortage," state Sen. Robert Myers (R–Fairbanks) told a State Senate Transportation Committee hearing on his proposed waiver resolution on March 20. "The Alaska Department of Natural Resources has projected shortfalls in the Cook Inlet natural gas supply beginning in the very near future. As such, various utilities are now discussing liquefied natural gas imports to solve the crisis. Alaska is in a unique quandary in which it prides itself on its oil and gas resources yet is unable to utilize its own natural gas from the North Slope gas fields."

Myers' statement was meant more for the record than for his fellow lawmakers. Alaskans are well aware of the problem and have been trying to overcome it for years. As it stands, the gas Alaskans use comes not from the abundant supply in the vast North Slope reserves, but from closer to home in the Cook Inlet. Interest in drilling there has waned, though, leaving one company, Hilcorp, as the main producer. Going forward, Hilcorp has warned that it may not be willing or able to supply gas at the same rate as in the past.

That should be fine, given all that North Slope gas. But the North Slope is far from Alaska's population centers. A new pipeline was approved in 2020 but is still struggling to find investors willing to foot the estimated $44 billion cost. South Korean companies seem interested (the gas will also be shipped overseas), but that still leaves completion of the project years in the future.

But liquid natural gas (LNG) is shipped all over the world. There's no practical reason the gas can't be transported by tanker from the North Slope wells to the users in the state's populated areas. But there's a big legal barrier.

Required To Use American Tankers That Don't Exist

Over a century ago, Congress passed the Merchant Marine Act of 1920, better known as the Jones Act, mandating that "No merchandise…shall be transported by water…between points in the United States…in any other vessel than a vessel built in and documented under the laws of the United States and owned by persons who are citizens of the United States." There's more to it, but the nationalistic law, intended to protect American shipping, effectively barred transporting goods between American ports in foreign-built and foreign-flagged vessels. That means North Slope natural gas can be transported to Alaska's populated south only in American tankers. If you can find any. You can't.

"LNG carriers have not been built in the United States since before 1980, and no LNG carriers are currently registered under the U.S. flag," the U.S. Government Accountability Office (GAO) reported in 2015. And, while you'd think that demand—not just in isolated states like Alaska and Hawaii, but also territories like Puerto Rico—would drive supply, there's a huge hurdle. "U.S. carriers would cost about two to three times as much as similar carriers built in Korean shipyards and would be more expensive to operate," the GAO added.

The GAO created its report at a time when Congress was considering extending the Jones Act to require that exports of natural gas be carried only in U.S.-flagged shipping. The GAO concluded that such a law would "increase the cost of transporting LNG from the United States, decrease the competitiveness of U.S. LNG in the world market, and may, in turn, reduce demand for U.S. LNG."

Congress wisely dropped the idea of extending the Jones Act, but Alaskans are still stuck with the original law, waiting for nonexistent domestically-built LNG tankers to show up with loads of North Slope natural gas. If they don't wait but instead try to ignore a law with which it's impossible to comply, they risk millions of dollars in fines, since the federal Department of Justice vigorously enforces the Jones Act.

In 2017, the feds fined an energy company $10 million for transporting a drill rig from the Gulf of Mexico to Alaska's Cook Inlet in a foreign-flagged vessel. The company planned to bring more natural gas to the resource-rich but energy-starved state.

Pleading for Relief From the Law

As Myers pointed out in his statement to the Alaska Senate, the federal government does permit waivers of the Jones Act, from time to time, and has done so for Alaska in the past. In an email to me, he mentioned that Crowley, an American shipping company that has defended the Jones Act, is now transporting LNG to Puerto Rico from the Gulf Coast in a French-built tanker. The company is permitted to do so through a narrow legal carve-out to the Jones Act that allows tankers built overseas before 1996 to be reflagged as American for the purposes of serving Puerto Rico. That won't help Alaska.

What will help Alaska in the short term is another waiver. In his proposed resolution, Myers points out that Alaskans face shortfalls in the natural gas supply beginning in 2027; that "in 2024, 39 percent of the electricity generated in the state was from natural gas, and nearly half of households in the state use natural gas to heat their homes"; and that U.S. military bases in the state, such as Joint Base Elmendorf-Richardson, will also suffer from the crunch.

The resolution, which is still in committee, continues:

BE IT RESOLVED that the Alaska State Legislature respectfully urges the United States Congress to recognize the imminent and acute need to stabilize the state's energy supply and enact a Jones Act waiver that facilitates the urgent transportation of domestic liquefied natural gas between ports in the state until Jones Act-compliant vessels are available.

If Congress goes along with the request, Alaska will get a temporary breather. But U.S. states and territories shouldn't have to beg permission of the federal government for companies to be able to transport abundant goods and resources between American ports in the ships that actually exist and are available instead of a fantasy fleet that has failed to materialize after 125 years of bad law.

Alaska should get its waiver in the short term. But the whole country should be relieved of the crippling burden that is the Jones Act.