How could the recently introduced bill requiring 30% of US LNG and crude oil to be exported on a US flagged carrier affect marine transportation MLPs?
In late February, the Energizing American Maritime Act (H.R. 1240) was introduced to the House of Representatives by John Garamendi. The bill would require 15% of LNG and crude oil exports to be transported on US flagged vessels starting in 2020. In 2025 and beyond, the threshold would jump to 30%. The stated reasons for implementing these regulations are security, preservation of the US tanker fleet, and maintenance of the skilled mariner workforce.
If you’re confused about what it means to be a “US flagged vessel” you’re not alone. According to the US Department of Transportation’s Maritime Administration, a ship that is allowed to fly the US flag must be registered in the US, meet US Coast Guard requirements for safety, abide by the laws of the US, and have a crew that meets citizenship requirements. For the record, this does not say the ship must be built in the US, just registered here. Additionally, just because a company is organized in a certain country does not mean that it’s ships are flagged there. For example, GasLog Partners (GLOP) is organized in the Marshall Islands, but the company’s ships are Bermuda flagged. Essentially, GLOP is a holding entity that holds the vessel owning entities. Therefore, a “Marshall Islands MLP” could have ships flagged in the US, but cost is a barrier.
In doing research for a previous article about the Jones Act, I learned that crews on US flagged vessels receive compensation that shakes out to be a little over five times more than those on foreign flagged ships. In addition, many foreign flagged ships pay few or no taxes where US flagged ships can pay up to 38%.
Many believe the Trump administration is looking to take advantage of increasing demand in foreign markets. The hope is that rising consumption in places like China and Pakistan will be a big win for LNG exporters like Cheniere Energy Partners (CQP). The issue with this bill is that it seems counterintuitive and doesn’t appear to make sense from a cost perspective. In fact, some industry stakeholders believe implementing H.R. 1240 would increase costs so much that it’d make US exports uncompetitive, especially when it comes to LNG, which is already experiencing major competition worldwide. If the bill were to pass, it would likely present pricing pressure for marine transportation companies—both MLPs and corporations.