La red eléctrica de Puerto Rico está (una vez más) al borde de una crisis. Durante meses, las compañías contratadas para suministrar gas natural licuado (GNL) y combustible diesel en el que la isla depende para generar electricidad no han cumplido sus compromisos de suministro en medio de las interrupciones inducidas por la invasión de Rusia a Ucrania. Pero mientras que otros países que se enfrentan a una crisis energética han podido recurrir a los combustibles producidos en los Estados Unidos como alternativa, Puerto Rico está mirando a países tan distantes como Omán. Detrás de esta desconcertante situación hay un culpable familiar: la Ley Jones, una ley de 1920 que restringe el transporte marítimo dentro de los Estados Unidos a los barcos con bandera estadounidense, construidos por los Estados Unidos y en su mayoría tripulados y propiedad estadounidense.
The Jones Act Is Forcing Puerto Rico to Overpay for Energy
By Colin Grabow and Alfredo Carrillo Obregon
Puerto Rico’s electrical grid is (once again) on the brink of a crisis. For months, companies contracted to supply liquefied natural gas (LNG) and diesel fuel that the island relies on to generate electricity have failed to fulfill their supply commitments amidst disruptions induced by Russia’s invasion of Ukraine. But whereas other countries facing an energy crunch have been able to turn to fuels produced in the United States as an alternative, Puerto Rico is instead looking to countries as distant as Oman. Behind this bewildering situation is a familiar culprit: the Jones Act, a 1920 law that restricts waterborne transport within the United States to vessels that are U.S.-flagged, U.S.-built, and mostly U.S.-crewed and ‑owned.
While U.S. energy production and fuel exports (most notably LNG) have grown significantly, Puerto Rico’s ability to access this bounty is constricted by the high cost of using Jones Act‐compliant tankers. And that’s if such ships are even available. In the case of natural gas, Jones Act‐compliant LNG tankers are non‐existent, rendering the bulk transportation of U.S. LNG to the island an impossibility. The Jones Act means that U.S. LNG can be transported by tankers to other countries but not other parts of the United States.
This brings with it real costs. When Puerto Rico applied for a 10‐year Jones Act waiver in 2018 (eventually denied) to gain access to U.S. LNG, official estimates suggested the measure would have saved the island around $800 million. A 2020 contract signed by the Puerto Rico Electric Power Authority, meanwhile, included guaranteed savings if the Jones Act was no longer applied to the transportation of LNG from the U.S. mainland.
To address this absurdity and alleviate its current energy shortfall Puerto Rico is yet again seeking a Jones Act waiver—and this time not just for LNG but all types of fuels from the U.S. mainland.
So how much U.S. fuel would Puerto Rico be using in the Jones Act’s absence? To shed some light, we compared the sources of several fuels—LNG, refined petroleum products and liquefied petroleum gas (LPG, basically propane)—imported by Puerto Rico and the neighboring Dominican Republic, which as a foreign country is unconstrained by the Jones Act. Specifically, we compared the share of each island’s total LNG, refined petroleum, and propane imports sourced from the United States versus other countries over a three‐year period beginning in 2019 and ending in 2021 (note U.S. LNG exports did not begin until February 2016 and export capacity has expanded significantly since then).
Given the well‐documented expense of using Jones Act shipping, we expected to find that U.S.-produced fuels made up a lower share of Puerto Rico’s total fuel imports relative to the Dominican Republic. But the scale of these differences nonetheless surprised.
In 2019, Puerto Rico imported $557 million worth of LNG. Of that, U.S. LNG accounted for a little over $121,000—or a meager 0.02 percent (Puerto Rico is able to import relatively minute quantities of U.S. LNG on container vessels through the use of ISO containers). In contrast, the Dominican Republic imported a total of $318.2 million worth of LNG of which the United States accounted for $34.4 million—10.82 percent of the total. By 2021, Dominican imports of U.S. LNG had risen to $477.4 million dollars (in nominal terms)—a staggering 96.4 percent of its LNG imports. In stark contrast, the U.S. share of Puerto Rico’s total LNG imports declined from 2019 to 2021 with U.S. LNG accounting for just 0.002 percent of the total.
Comparing Puerto Rico and Dominican Republic imports of LNG by volume yields similar results. According to data from the International Gas Union and International Group of Liquefied Natural Gas Importers, U.S. LNG does not figure amongst Puerto Rico’s imports while it increased from 18.45 percent of the Dominican Republic’s imports in 2019 to 65 percent in 2021.
A sharp divide in the two islands’ preference for U.S. fuel oil used for electricity production is also evident[i]. In 2019, the Dominican Republic sourced 66.8 percent of its total imports of fuel oil (by value) from the United States while Puerto Rico only obtained 0.44 percent of its fuel oil domestically. By 2021, this gap had further widened, with the Dominican Republic purchasing 80.2 percent of its total fuel oil imports from the United States, while Puerto Rico sourced a mere 0.56 percent from the country that it is a part of.
Regarding propane, meanwhile, the Dominican Republic has imported close to 100 percent of the fuel from the United States (by value) since 2019. In contrast, the U.S. mainland only accounted for 4.1 percent of Puerto Rico’s total propane imports in 2021—up from 0.14 percent in 2019. As with LNG, the bulk transportation of LPG within the United States is not possible due to a total lack of appropriate Jones Act‐compliant tankers.
Corroborating this paucity of energy flows from the U.S. mainland to Puerto Rico is data on ship arrivals. Whereas there were 365 tanker arrivals to Puerto Rico in 2019, for example, just three such movements were from the U.S. mainland (all three being accounted for by the EMI 1850, a barge used to transport coal). The pattern is similar for later years. Of the 427 tanker arrivals to Puerto Rico in 2020, only 17 came from the U.S. mainland (of which just four were tanker ships with the EMI 1850 comprising the remainder). And last year, only 11 of 425 tanker arrivals were Jones Act vessels from the U.S. mainland (comprising one visit each from a tanker ship and two tank barges, along with eight visits from the EMI 1850).
Even pro‐Jones Act groups admit the dearth of U.S. energy shipments to Puerto Rico. A 2017 press release from Crowley Maritime, an operator of Jones Act shipping (including tankers), noted that 90 percent of the island’s energy was obtained from foreign sources.
Energy analysts see no mystery behind these sourcing decisions with an April S&P Global article flatly stating “Puerto Rico rarely pulls from the [United States] because of expensive shipping requirements for Jones Act ships.” Further confirmation comes from a 2013 Government Accountability Office report noting the law’s deterrent effect on U.S. energy imports (page 19), while a 1980 National Academy of Sciences report noted the law’s detrimental impact on the transportation of oil to Puerto Rico from the U.S. mainland. The Jones Act has been harming Puerto Rico’s ability to obtain U.S. energy for decades.
That the Dominican Republic, unshackled by the Jones Act and able to access efficient international shipping, opts to purchase the vast majority of key fuels from the United States suggests this is the optimal choice. That Puerto Rico does not despite similar geographical proximity to the U.S. mainland is suggestive of sub‐optimal energy sourcing imposed by the Jones Act, and foregone cost savings.
Quantifying the exact magnitude of this opportunity cost is difficult, but a few facts are worth bearing in mind. In 2019 Puerto Rico consumed 38,000 barrels of petroleum products per day or nearly 14 million per year. For every dollar per barrel in additional costs imposed by the Jones Act, Puerto Rico is effectively paying an annual tax of $14 million. To that must be added the tens of millions of dollars in potential annual savings from access to U.S. LNG cited by Puerto Rican officials. The ability to purchase U.S. propane would no doubt produce further savings. The required use of Jones Act‐compliant barges to move fuel within Puerto Rico, meanwhile, is said to impose another $3–5 million in additional costs.
Puerto Rico has a 43 percent poverty rate and in 2020 had average electricity rates higher than every state except Alaska and Hawaii (both non‐contiguous states disproportionately impacted by Jones Act shipping requirements). Now amidst fallout from Russia’s invasion of Ukraine its energy outlook is becoming even more precarious. One obvious way of providing assistance would be to grant the island a Jones Act exemption—at the very least for energy products (including renewable energy).
Not only would such an exemption benefit island residents (and U.S. energy producers), it would also have little downside for the U.S. maritime industry given the lack of energy‐related domestic shipping to Puerto Rico. Requiring the use of Jones Act shipping for transporting energy products from the mainland hasn’t yielded a bonanza for American vessels or mariners. It simply means Puerto Rico has largely been forced to look elsewhere and bear higher costs for its energy needs. It’s unclear who is benefitting here but there are losers aplenty.
That the Dominican Republic sources most of its fuel from the United States while Puerto Rico—a U.S. territory with American citizens—does not (and cannot in the case of bulk LPG and LNG) is an embarrassing absurdity. Such a distorted state of affairs can only be explained by misguided Jones Act protectionism. Let us hope the island can be exempted from this archaic law so it can make greater use of domestic products and realize much‐needed savings to meet its citizens’ energy needs.
[i] Both Puerto Rico and the Dominican Republic use fuel oils no. 2 (e.g., diesel) and no. 6 (e.g., “Bunker C” oil) to generate electric energy. Due to data limitations, the figures included in this blog report data on both islands’ imports of every type of fuel oil.