Oil companies work around the Jones Act to supply US fuel markets

As high demand for gasoline and global disruptions in fuel markets push prices higher, US oil companies are working around a century-old shipping law to supply fuel to the US East Coast, according to refining and oil trading sources.

Traders are increasingly shipping unfinished gasoline components from the Gulf Coast to Buckeye Partners LP's terminal in the Bahamas, also known as Borco, where they are blended into finished gasoline for shipment to the US East Coast. This unusual trade is a sign of strong demand for products along the coast, home to some of the country's largest consumer markets. The trade represents a legal workaround to the Jones Act, which requires goods moving between U.S. ports to be transported by domestically built ships crewed by U.S. workers. The limited number of these vessels drives up the cost of these shipments. Since March, at least eight ships have carried gasoline components from the Gulf Coast to the Borco terminal in the Bahamas, where they then delivered finished gasoline to ports across the Atlantic, according to shipping data. Most of the ships were chartered by BP (NYSE:BP) Plc. BP declined to comment. Normally, Gulf Coast sellers make bigger profits by either exporting product or shipping gasoline or diesel to the East Coast via the Houston-New Jersey Colonial Pipeline, which carries about 2.5 million barrels a day of gasoline and other fuels. This line is currently clogged as US East Coast refineries struggle to keep up with demand. According to the US Energy Information Administration, these refineries are operating at more than 98% capacity. Shippers are making requests to Colonial to transport refined products through Colonial, but at the moment these requests exceed the total capacity of the line. Traders said space on the line is more expensive than it has been for years, making it suddenly profitable to move goods through the Bahamas stop. This trade does not run afoul of the Jones Act, but it was rare before Russia's invasion of Ukraine and has not materialized in 2021, according to available shipping data. In 2021, the United States exported a total of 146,000 barrels of gasoline components to the Bahamas, according to the EIA. In May 2022, the latest available data, that figure was 498,000 barrels. Last year, the United States imported 699,000 barrels of finished gasoline from the Bahamas, accounting for 1.8% of all imports that year. So far in 2022, the United States has imported 1.2 million barrels of gasoline from the Bahamas. In March, Agean Star and Gulf Rastaq loaded fuel components at Houston, unloaded at Borco and then supplied finished gasoline to Savannah, Georgia, and Jacksonville, Florida, according to shipping data. The Nave Luminocity and Navig8 Success vessels loaded gasoline components in the Gulf, unloaded at Borco and then transported finished gasoline to New Jersey and New York, according to shipping data. Several other ships made similar voyages throughout the summer.