Shipping U.S. Crude Oil by Water: Vessel Flag Requirements and Safety Issues

Summary

New sources of crude oil from North Dakota, Texas, and western Canada have induced new routes for shipping crude oil to U.S. and Canadian refineries. While pipelines have traditionally been the preferred method of moving crude overland, they either are not available or have insufficient capacity to move all the crude from these locations. While rail has picked up some of this cargo, barges, and to a lesser extent tankers, also are moving increasing amounts of crude in domestic trade.

The rather sudden shift in transportation patterns raises concerns about the safety and efficiency of oil tankers and barges. The United States now imports less oil than five years ago by oceangoing tankers, while more oil is moving domestically by river and coastal barges. However, the Coast Guard still lacks a safety inspection regime for barges similar to that which has long existed for ships. The possibility of imposing an hours-of-service limit for barge crews as part of this regime is controversial. Congress called for a barge safety inspection regime a decade ago, but the related rulemaking is not complete. The Coast Guard’s progress in revamping its Marine Safety Office is a related issue that Congress has examined in the past.

The majority of U.S. refineries are located near navigable waters to take advantage of economical waterborne transport for both import and export. However, for refineries switching from imported to domestic crude oil, the advantage diminishes considerably. This is because the Jones Act, a 1920 law that seeks to protect U.S. shipyards and U.S. merchant sailors in the interest of national defense, restricts domestic waterborne transport to U.S.-built and -crewed vessels. The purchase price of U.S.-built tankers is about four times the price of foreign-built tankers, and U.S. crewing costs are several times those of foreign-flag ships. The small number of U.S.-built tankers makes it difficult for shippers to charter tankers for a short period or even a single voyage, highly desirable in an oil market with shifting supply patterns. The unavailability of U.S.-built tankers may result in more oil moving by costlier, and possibly less safe, rail transport than otherwise would be the case. Some Texas oil is moving to refineries in eastern Canada, bypassing refineries in the northeastern United States, because shipping to Canada on foreign-flag vessels is much cheaper than shipping domestically on Jones Act-eligible ships.

Some of these issues may be addressed in the Coast Guard and Maritime Transportation Act of 2014 (H.R. 4005), which has passed the House, and the Coast Guard Authorization Act for Fiscal Years 2015 and 2016 (S. 2444), introduced in the Senate. The House bill requests federal agency studies and recommendations towards improving the competitiveness of the U.S.-flag industry while the Senate bill contains provisions related to oil spill response.