SPR Oil Sale Requires Use of Jones Act Vessels

On January 9, 2017, the Strategic Petroleum Reserve Project Management Office of the U.S. Department of Energy issued a Notice of Sale for eight million barrels of crude oil from the Strategic Petroleum Reserve. Offers are due on January 17, 2017. The Notice of Sale requires the use of Jones Act-qualified U.S.-flag vessels unless an individual waiver is obtained for any oil shipped to a U.S. destination. The Jones Act generally requires the use of qualified U.S.-flag vessels to transport merchandise between two points in the United States.

A number of Jones Act waivers were issued in an SPR sale that occurred in June 2011. In that sale, the minimum lot size of 500,000 barrels precluded the use of many available Jones Act U.S.-flag vessels and waivers were issued on the basis of such non-availability.

These waivers proved highly controversial and were opposed by the Jones Act community. A number of subsequent annual appropriations laws prohibited the use of any funds to process a Jones Act waiver for the carriage of SPR-source oil.

The January 2017 Notice of Sale expressly states that no general of blanket waiver of the Jones Act is being issued with this most recent sale—although it leaves open the possibility of individual waiver requests and it notes the  repeal of the ban on crude oil exports. The Jones Act waiver law requires a finding of qualified vessel non-availability for the issuance of a waiver. Moreover, the recent Notice of Sale provides that the minimum delivery lot sizes will be 290,000 barrels for vessels and 40,000 for barges.