Here's how waiving a century-old law can help fix America's diesel crisis
- The Energy Information Administration has warned that US diesel fuel reserves are dwindling rapidly.
- The Jones Act, which is more than a century old, prevents foreign vessels from transporting goods between two US ports.
The US is facing a worsening diesel supply crisis, and a century-old law is standing in the way of easing the crunch.
Diesel reserve stockpiles for this time of year are at their lowest point in decades. And at one point last month, it reached the equivalent of 25 days' worth of supply, as inventory stood at 106 million barrels and demand was at 4.2 million barrels per day, according to the Energy Information Administration.
The shortage stems from the early stages of the COVID-19 pandemic when gas demand crashed and refiners pulled back operations, Matt Smith, lead oil analyst at Kpler, told Insider.
Trucks that run on diesel continued to deliver goods around the country, so consumption of the fuel remained elevated despite a slowdown in refinery production, which has resulted in a gradual decline in inventories for more than two years.
"The double whammy is that, as demand has picked up post-pandemic, the US is exporting more, well over a million barrels a day," Smith said. "And the triple whammy is the sanctions coming onto Russia's diesel exports early next year, so the global backdrop is tight supply."
Waiving the Jones Act
To Smith, the diesel shortage could ease if government officials waived the Jones Act, or the Merchant Marine Act of 1920. The law maintains that cargo transported between two US ports must be brought on vessels primarily built and crewed by Americans.
But the number of tankers that meet these specifications is limited, which makes the cost of using them roughly double that of a foreign ship. The additional expenses make Jones Act tankers less attractive for traders.
That means New England, which faces an acute diesel shortage, must either import supplies from overseas or from the US Gulf Coast. But the Jones Act makes it too costly to move diesel from the Gulf Coast to the East Coast, Smith said, exacerbating regional challenges and pushing buyers to turn to cheaper options from abroad.
"In a rather bizarre turn of events, the US Gulf Coast ships diesel to all manner of countries, but not to the US East Coast," he said. "As for the US East Coast, it is left to import from as far afield as India and Qatar."
Smith noted that even though a broad suspension of the Jones Act would improve the diesel crisis, it has yet to be repealed because it's a "political hot potato."
The Department of Homeland Security told CNBC recently that Jones Act waivers are granted on a case by case basis, and that the mandate is critical to maintaining the strength of US shipbuilding and maritime industries.
The DHS last approved a waiver for Puerto Rico in September for an emergency response to Hurricane Fiona.