Oil Reserves Sidestep U.S. Vessels

In its hurry to transport millions of barrels of oil from federal
stockpiles to stabilize world oil prices earlier this summer, the Obama administration has repeatedly bypassed federal law by allowing nearly
all the oil to move on foreign-owned vessels, drawing protests from
domestic maritime operators.

The domestic ship owners say that 46 times the administration has waived the Jones Act, a 90-year-old law requiring purely domestic cargo to move on United States-flagged ships except under extraordinary circumstances. Only once this summer has oil from the reserve moved on American barges.

Even as unemployment hovered over 9 percent, the administration approved dozens of applications to transport nearly 30 million barrels of domestic crude oil within the borders of the United States on tankers employing foreign crews and flying the flags of the Marshall Islands, Panama and other countries.

The move, which saved time and money for the oil companies that bought the oil, took potential work from more than 30 American cargo vessels and as many as 400 sailors, American ship owners said in recent days.

“This has literally flabbergasted the American maritime industry,” said Christopher Coakley, vice president for legislative affairs at the American Waterways Operators, an association of domestic ship and barge operators. “The idea was to create American jobs and help the economy. But all the profit from the sale of the oil has gone to traders and oil companies and all the profit from movement of the oil has gone to foreign shippers and crewmen, and that’s galling.”

In late June, the Obama administration, acting in concert with the 27 nations of the International Energy Agency, released the oil from the Department of Energy’s Strategic Petroleum Reserve to make up some of the shortfall caused by the conflict in Libya. The administration said it wanted to get the oil to market quickly to lower prices and ensure supplies for the summer travel season. To meet that goal, it set very short deadlines for transporting the crude.

To waive the Jones Act, the president must find that there is a national security emergency and that domestic carriers are not available in a timely manner. The cutoff of oil from Libya and a lack of large-capacity American tankers provided the legal rationale for circumventing the law.

Representative Peter T. King, the New York Republican who is chairman of the House Homeland Security Committee, said that it appeared that the administration had met the formal requirements for waiving the Jones Act, but he questioned the political and economic wisdom of doing so.

“The spirit of the law is when possible, use a U.S. vessel, especially in tough economic times,” Mr. King said. “I think it has to hurt the American economy, hurt the maritime industry and affect American jobs.”

The government originally issued a blanket waiver, allowing the oil buyers to use foreign ships without prior approval, as it had when it released oil from the strategic reserve after Hurricane Katrina in 2005. When the industry protested the proposed blanket waiver in June, the administration said it would review each application. To date, there have been 47 shipments of oil from the caverns in Texas and Louisiana where the petroleum reserves are stored, according to maritime industry officials. One 150,000-barrel shipment moved on a domestic barge.

Most of the shipments were to East Coast refineries from loading points in the Gulf of Mexico.

Administration officials said that the oil was sold in large lots, most of them 500,000 barrels or more, and the dozen or so oil companies and traders that bought them found it faster and more economical to move the oil on 500,000-barrel capacity ocean-going tankers rather than on American-owned coastal barges. With only a couple of exceptions, the coastal barges tend to hold 150,000 barrels or less.

Clark Stevens, a White House spokesman, said that the administration tried to accommodate the domestic maritime industry by lowering the minimum lot size and by considering individual waivers. The administration would have preferred to use American ships but they were not available, he said.

In an e-mailed statement, he said: “Due to the volumes requested by the purchasing companies and the focus on getting this oil to U.S. markets as quickly as possible, the Department of Homeland Security — working with the Maritime Administration and the Department of Energy — determined that individual Jones Act waivers were appropriate since the U.S. fleet had only small barges available, and the buyers bid on the basis of larger, more efficient tankers.”

OSG, a shipping company based in New York, transported oil for three of the oil companies that bought crude from the petroleum reserve. It moved one shipment on an American-flagged barge and three on large tankers that are registered in the Republic of the Marshall Islands.

Morten Arntzen, the company’s chief executive, said that the United States was not an oil-exporting country and therefore did not have the capacity to move large shipments of oil on short notice. He said that a relatively large sale from the petroleum reserve was a rare event and that it did not make sense for domestic oil shippers to maintain fleets of tankers.

“The United States hasn’t been exporting oil for decades, so this isn’t a cargo movement anybody positions their fleets for,” he said.

Government officials said that since 1995, 39 American-flagged large-capacity tankers had been taken out of commission, leaving only nine such ships, which generally are used on runs to the West Coast from Alaska. None were available on the short timeline dictated by the government, officials said.

The maritime operators said there was sufficient domestic shipping capacity available, although it would have required breaking the oil shipments into smaller lots, increasing the cost and prolonging delivery times.

Mr. Coakley of the Waterways Operators said that domestic jobs should have been more important than the speed of delivery.

“The urgency of that timeline is ridiculous when you consider that today, two months after the sale of the oil, almost 10 million barrels of the 30 million barrels released hasn’t yet been transported,” he said.

Mr. King said, “I don’t see this as a partisan issue. But I would think a Democratic administration would be making some effort to help American workers.”