In a new paper, economists Ryan Kellogg and Richard L. Sweeney examine what might happen if oil and petroleum products could be transported from the Gulf Coast to the East Coast without Jones Act shipping restrictions. Their answer: many more barrels of these energy supplies would be moved between the two coasts, resulting in efficiency gains and lowered prices. The economists estimate that East Coast consumers would experience benefits to the tune of $896 million per year while overall consumer surplus would rise by $769 million annually.
And these estimates, Kellogg and Sweeney add, are conservative.
As I noted last week, the Jones Act’s requirement that only US‐built and US‐flagged vessels transport goods within the United States introduces significant distortions in the domestic energy market. Such shipping is so costly that it is often more attractive to purchase oil from distant countries—where the Jones Act does not apply—than elsewhere in the United States.
Instead of transporting Gulf Coast crude to East Coast refineries, it’s often sent as far as China and South Korea on less expensive internationally flagged ships. The East Coast, in turn, mostly meets its crude needs from countries such as Nigeria and Saudi Arabia.
The same dynamic also applies to refined products such as motor gasoline. Instead of purchasing domestic supplies, the East Coast imports fuel from Europe and elsewhere while the Gulf Coast exports much of its output to Latin America.
Such inefficiencies mean higher costs. To estimate these costs, Kellogg and Sweeney examined oil and petroleum product price differences between the Gulf Coast and East Coast during 2018 and 2019. They then calculated likely domestic shipping prices in the Jones Act’s absence. Where the price difference exceeded the new shipping price without the Jones Act, they assumed the energy supplies would then be moved from the Gulf Coast to the East Coast.
The estimated result: fuel shipments would have grown from 253 million barrels per year to 371 million barrels—a nearly 47 percent increase. Such an increase would have been of sufficient magnitude to almost entirely replace East Coast imports of jet fuel and ultra‐low sulfur diesel and completely replace imports of motor gasoline in the East Coast’s Lower Atlantic region. Significant amounts of light crude oil imports would have been displaced as well.
The efficiency gains by sourcing domestically instead of distant countries would translate into lower fuel prices ranging from 36 to 82 cents per barrel—depending on what is being moved—and consumer savings in the hundreds of millions of dollars.
Significantly, the authors note that their study likely underestimates the long‐run effects of no longer applying the Jones Act to the movement of oil and petroleum products. They point out, for example, that investments in mid‐Atlantic refineries could become more attractive as the facilities gain access to more competitively priced supplies of oil. It’s also worth highlighting that the study does not examine the Jones Act’s impact on the East Coast’s consumption of certain fuels such as reformulated motor gasoline, liquefied natural gas, and propane.
Furthermore, the study does not cover other parts of the United States whose energy costs are inflated by the Jones Act, such as the West Coast, Puerto Rico, Hawaii, and Alaska. Once these are accounted for there is strong reason to believe the Jones Act imposes costs to consumers that surpass $1 billion annually for energy supplies alone.