Jonesing for New Ships
- The Jones Act mandates only US-built ships can move product from US port to US port.
- So, the supply of LNG (liquid natural gas) tankers is severely constrained, as the US doesn’t build any.
- As a result, the price of LNG is far higher than it needs to be.
Why I Love Natural Gas Right Now
I started C6 Holdings back in 2020.
My view was that private equity was better. I thought the public markets were criminal, and that we were coming into a massive recession.
It was a borderline depression back then, as it is now.
I thought inflation would take off and I wanted to own hard assets.
So, I took the view that we were going to have three clear shortages.
We were going to have shortages in baseload energy, food and fertilizer, and diesel.
So, I wanted to figure out the best ways to invest and capture the upside in each one.
We've had poor policy decisions for the last 30 odd years when it comes to power.
And if you look at just where you have clear bottlenecks, New England was the most apparent.
Why New England? Because they’re not building pipelines up there! As a result, they’re not getting any natural gas from Pennsylvania.
Did you know there is no LNG ship that can move LNG from a US port to a US port?
The reason is because of the Jones Act.
What’s the Jones Act, you ask?
What’s the Jones Act?
The Jones Act is Section 27 of The Merchant Marine Act of 1920.
The Jones Act deals with cabotage. Cabotage – no, not sabotage – is another term for “coastwide trade.”
Senator Wesley Jones wrote this section of the 1920 Merchant Marine Act.
The Jones Act requires that all goods transported by water between U.S. ports be carried on ships that have been constructed in the United States, fly the U.S. flag, are owned by U.S. citizens, and are crewed by U.S. citizens and U.S. permanent residents.
Now before you get your hackles up about protectionism, let’s see why Senator Jones did this.
One of the main reasons was World War I.
Belligerent countries withdrew their merchant fleets from commercial service to aid in the war effort.
The US had an insufficient number of vessels to conduct normal trade, which hurt the economy.
Later, when the U.S. joined the war, there were insufficient vessels to transport war supplies, materials, and ultimately soldiers to Europe resulting in the creation of the United States Shipping Board.
The U.S. engaged in a massive ship building effort including building concrete ships to make up for the lack of U.S. tonnage.
The Jones Act was passed to prevent the U.S. from having insufficient maritime capacity in future wars.
And that makes perfect sense, especially considering our current relationship with China.
Do you really want your enemy to build your important infrastructure?
But there are unintended consequences, as all government actions have.
In 2014, Nicolas Loris, Brian Slattery and Bryan Riley of the Heritage Foundation, authored a report titled, “Sink the Jones Act: Restoring America’s Competitive Advantage in Maritime-Related Industries.”
The paper argues the Jones Act is an ineffective way to promote U.S. shipbuilding. The authors claim it drives up shipping costs, increases energy costs, stifles competition, and hampers innovation in the U.S. shipping industry.
Be that as it may, the Jones Act persists.
And as Yoda might say, “Deal with it, we must.”
Now that you have a good background on Jones, let me show you how it squeezes the garden hose of our energy supply chain.
You Mean to Tell Me…
Imagine this: there is no Jones Act flagged LNG (liquid natural gas) cargo ship that can go from Houston to Boston.
That’s because no one in the US builds the special ships that transport LNG.
So instead, you have to go from Houston to the UK, where you must get gassed into their tanks.
Then you ship the LNG back across the Atlantic.
Idiotic, right?
Let’s make sure you get this.
To get LNG into Boston, you must go across the Atlantic twice from the US.
Got it? Good.
That's just giving you an idea of how New England is an island in terms of natural gas. So that means that natural gas fired power plants can't run any hotter.
Coal, Diesel, and Electricity
And they've been taking coal offline because yes, it's coal.
New England has also created what's called an electrification mandate.
The New England hat is the highest consumer of heating oil in the United States.
The problem – or benefit for us – leads to the diesel part of the equation.
New Englanders demanded and voted that they can only run ultra-low sulfur diesel.
So, heating oil in New England is the same as road diesel.
In fact, it's so similar they had to dye one of them red, so they know which one is going to the to the pump and which one is going to people's homes.
So that just meant that prices were going to go up on the heating oil side.
So, the dual fuel component of natural gas was going to be very difficult.
And because of this, they mandated electrification, which is electrify the homes so electric stoves electric dryers, electric heat gets them away from natural gas.
Now they say that like they were doing themselves a favor.
But if you called up National Grid and told them you wanted to hook up your home to the gas line, they'd laugh at you.
There's not enough gas product in the pipe to maintain pressure gradients.
So, they physically can't have anyone else tapping into that pipe.
Because two or three years ago, they lost pressure on the toe of the pipeline.
That means that 7,000 homes in Newport lost heat because there was no pressure in Rhode Island.
There wasn't enough product in the pipeline because people in northern New England were pulling so hard at the front end of it.
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Freedom Financial News