US should reexamine Jones Act, Tesoro’s CEO recommends

Tesoro Corp. Chief Executive Officer Gregory J. Goff called for a review of the Jones Act, a federal law dating from the 1920s that requires US-produced goods moving between US ports to do so aboard US-flagged vessels.

“To move crude oil from the Gulf Coast to Northeast refineries costs 2-3 times as much as to bring it from Saudi Arabia,” he said in remarks to the US Energy Association’s 7th Annual Energy Supply Forum on Oct. 2. “The Jones Act makes it economically impossible for us to buy North Dakota crude for our West Coast refineries and displace imports.”

Goff, who leads one of the nation’s largest independent refiner-marketers, said provisions in the federal Renewable Fuels Standard and proposed ozone regulations also could pose problems for domestic downstream operations.

But he added that Congress and other federal policymakers should at least discuss and debate ways the Jones Act makes US oil product markets less economic and efficient. “It’s possible repealing it will be the best solution, although that wouldn’t be easy,” Goff said.

His observations after Graeme Burnett, senior vice-president for fuel optimization at Delta Air Lines Inc., which owns a Northeastern US refinery, said on Sept. 23 that the Jones Act and RFS need to be reconsidered before more US crude oil exports are authorized.

Transportation needs

On the question of allowing more US crude exports, Goff said, “We believe the market should determine this. You can’t have impediments like the Jones Act, which hurts refiners’ ability to get products to consumers.”

He said that while independents have acquired a bigger share of US refining since 2008, transportation needs have become critical since gasoline and diesel fuel exports are expected to grow by 750,000 b/d by 2020.

“The industry is incredibly efficient getting crude to refineries or export terminals by pipeline and, more recently, rail which has been critical and highly efficient the past few years,” Goff said.

Tesoro would be half-owner of a proposed Vancouver, Wash., rail-to-marine terminal with an up to 360,000 b/d capacity that it hopes to have operating in 2015, subject to regulatory approval, he noted. “A project like this enhances US energy security, and would help get US crude to West Coast refineries,” he said.

The company also has proposed building a crude oil pipeline in Utah to transport Uinta Basin waxy crude to refineries north of Salt Lake City, reducing tanker truck traffic over mountain highways there. Stakeholder engagement is essential, Goff said.

“It’s an ongoing process,” he explained. “We’ve been working for some time to help people understand how we’re handling issues that arise. Like our Vancouver, Wash., project, we have to deal with diverse stakeholders, some of whom oppose fossil fuels.”

Goff said he expects the US Pipeline and Hazardous Materials Safety Administration to issue new crude-by-rail regulations by yearend. “As it moves forward, we expect some recommended changes to be adopted,” he said.

Contact Nick Snow at nicks@pennwell.com.

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