[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
A REVIEW OF VESSELS USED TO CARRY
STRATEGIC PETROLEUM RESERVE DRAWDOWNS
=======================================================================
(112-90)
HEARING
BEFORE THE
SUBCOMMITTEE ON
COAST GUARD AND MARITIME TRANSPORTATION
OF THE
COMMITTEE ON
TRANSPORTATION AND INFRASTRUCTURE
HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
SECOND SESSION
__________
JUNE 27, 2012
__________
Printed for the use of the
Committee on Transportation and Infrastructure
Available online at: http://www.gpo.gov/fdsys/browse/
committee.action?chamber=house&committee=transportation
_____
U.S. GOVERNMENT PRINTING OFFICE
75-375 PDF WASHINGTON : 2012
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC
area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC, Washington, DC
20402-0001
COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE
JOHN L. MICA, Florida, Chairman
DON YOUNG, Alaska NICK J. RAHALL II, West Virginia
THOMAS E. PETRI, Wisconsin PETER A. DeFAZIO, Oregon
HOWARD COBLE, North Carolina JERRY F. COSTELLO, Illinois
JOHN J. DUNCAN, Jr., Tennessee ELEANOR HOLMES NORTON, District of
FRANK A. LoBIONDO, New Jersey Columbia
GARY G. MILLER, California JERROLD NADLER, New York
TIMOTHY V. JOHNSON, Illinois CORRINE BROWN, Florida
SAM GRAVES, Missouri BOB FILNER, California
BILL SHUSTER, Pennsylvania EDDIE BERNICE JOHNSON, Texas
SHELLEY MOORE CAPITO, West Virginia ELIJAH E. CUMMINGS, Maryland
JEAN SCHMIDT, Ohio LEONARD L. BOSWELL, Iowa
CANDICE S. MILLER, Michigan TIM HOLDEN, Pennsylvania
DUNCAN HUNTER, California RICK LARSEN, Washington
ANDY HARRIS, Maryland MICHAEL E. CAPUANO, Massachusetts
ERIC A. ``RICK'' CRAWFORD, Arkansas TIMOTHY H. BISHOP, New York
JAIME HERRERA BEUTLER, Washington MICHAEL H. MICHAUD, Maine
FRANK C. GUINTA, New Hampshire RUSS CARNAHAN, Missouri
RANDY HULTGREN, Illinois GRACE F. NAPOLITANO, California
LOU BARLETTA, Pennsylvania DANIEL LIPINSKI, Illinois
CHIP CRAVAACK, Minnesota MAZIE K. HIRONO, Hawaii
BLAKE FARENTHOLD, Texas JASON ALTMIRE, Pennsylvania
LARRY BUCSHON, Indiana TIMOTHY J. WALZ, Minnesota
BILLY LONG, Missouri HEATH SHULER, North Carolina
BOB GIBBS, Ohio STEVE COHEN, Tennessee
PATRICK MEEHAN, Pennsylvania LAURA RICHARDSON, California
RICHARD L. HANNA, New York ALBIO SIRES, New Jersey
JEFFREY M. LANDRY, Louisiana DONNA F. EDWARDS, Maryland
STEVE SOUTHERLAND II, Florida
JEFF DENHAM, California
JAMES LANKFORD, Oklahoma
REID J. RIBBLE, Wisconsin
CHARLES J. ``CHUCK'' FLEISCHMANN,
Tennessee
------ 7
Subcommittee on Coast Guard and Maritime Transportation
FRANK A. LoBIONDO, New Jersey, Chairman
DON YOUNG, Alaska RICK LARSEN, Washington
HOWARD COBLE, North Carolina ELIJAH E. CUMMINGS, Maryland
ANDY HARRIS, Maryland CORRINE BROWN, Florida
FRANK C. GUINTA, New Hampshire TIMOTHY H. BISHOP, New York
CHIP CRAVAACK, Minnesota MAZIE K. HIRONO, Hawaii
BLAKE FARENTHOLD, Texas MICHAEL H. MICHAUD, Maine
JEFFREY M. LANDRY, Louisiana, NICK J. RAHALL II, West Virginia
Vice Chair (Ex Officio)
JOHN L. MICA, Florida (Ex Officio)
CONTENTS
Page
Summary of Subject Matter........................................ iv
TESTIMONY
Panel One
Hon. John D. Porcari, Deputy Secretary, United States Department
of Transportation.............................................. 3
Panel Two
Thomas Allegretti, President, The American Waterways Operators
(AWO), on behalf of AWO and American Maritime Partnership...... 18
PREPARED STATEMENTS SUBMITTED BY WITNESSES
Hon. John D. Porcari............................................. 32
Thomas Allegretti................................................ 39
A REVIEW OF VESSELS USED TO CARRY
STRATEGIC PETROLEUM RESERVE DRAWDOWNS
----------
WEDNESDAY, JUNE 27, 2012
House of Representatives,
Subcommittee on Coast Guard and
Maritime Transportation,
Committee on Transportation and Infrastructure,
Washington, DC.
The subcommittee met, pursuant to notice, at 10:02 a.m. in
Room 2167, Rayburn House Office Building, Hon. Frank A.
LoBiondo (Chairman of the subcommittee) presiding.
Mr. LoBiondo. The subcommittee will come to order.
The subcommittee is meeting today to review the process
used to determine the availability of U.S.-flag vessels during
the summer 2011 drawdown of crude oil from the Strategic
Petroleum Reserve.
I would like to thank Ranking Member Larsen for requesting
a hearing on this important topic. The subcommittee is very
happy that he suggested it. My hope is that we will get some
answers today to several important questions regarding the
conduct of the administration and identify what mistakes were
made so we can avoid this situation from happening in the
future.
On June 23, 2011, President Obama announced that the U.S.
and its partners would release a total of 60 million barrels of
oil into the world market over a 30-day period to offset the
disruption in oil supply caused by unrest in Libya. As part of
the effort, the U.S. pledged to release 30 million barrels of
oil from the Strategic Petroleum Reserve.
As most of us here today are aware, the waterborne
transportation of oil from the SPR to U.S. refineries is
governed by the Jones Act. That is law. The Jones Act protects
our national security and promotes job growth in the United
States maritime sector by requiring merchandise and passengers
moving between two points in the U.S. to be carried on U.S.-
built, U.S.-owned, U.S.-crewed, and U.S.-flagged vessels.
The Jones Act has been the law since 1920. In 1987, the
Department of Energy, MarAd and Customs signed an agreement
outlining the process agencies must follow to ensure compliance
with the Jones Act during the Strategic Petroleum Reserve
drawdown.
During last summer's drawdown, however, reports from the
press indicate the administration may have deliberately ignored
U.S. law in issuing over 40 Jones Act waivers for the transport
of oil from the SPR. After issuing a blanket waiver and then
rescinding it a day later, it appears as though the
administration was assuring potential bidders for SPR oil that
individual waivers would be granted for large volume sales
before applications were even submitted.
It also appears the administration made no effort to use
its authority to require the oil to be divided into smaller
lots in order to be carried on U.S.-flag vessels.
I find these actions extremely disturbing, particularly
because it came at a time when so many Americans were out of
work and these were American jobs that were affected. It is
puzzling that an administration claiming to being doing
everything they can to help America's unemployed would allow
vessels crewed by foreigners, not Americans, owned by
foreigners, built in foreign countries, and flying foreign
flags to carry nearly all of the Strategic Petroleum Reserve
oil released. In fact, only one U.S. vessel was used. That
vessel carried less than 1 percent of the 25 million barrels of
SPR oil that was moved on water.
U.S.-owned vessels crewed by American mariners stood ready,
were willing, and again, ready to move more of the oil, but it
seems the administration decided to leave them at the dock.
I look forward to hearing from our witnesses today on how
this situation unfolded and why it unfolded. I am particularly
interested in whether promises were made that Jones Act waivers
would be granted before applications were submitted. I am also
eager to hear an explanation regarding what appears to be a de
facto 500,000 barrel lot size that effectively disqualified
available U.S.-flag vessels.
Finally, I am interested in hearing from an industry on the
status of the Jones Act fleet at the time of the drawdown. It
is important for us to know that there was, indeed, sufficient
capacity available to move more of the oil and the process by
which the administration was made aware of U.S.-flag vessel
availability.
I want to thank the witnesses for appearing today, and now
I yield to Mr. Larsen.
Mr. Larsen. Mr. Chairman, thank you for convening this
morning's hearing to examine how best to uphold the integrity
of the Jones Act when future shipments of oil are released from
the Strategic Petroleum Reserve, or the SPR.
The Jones Act exists for good reason. It sustains a vibrant
and strong domestic maritime industry. It creates job
opportunities for U.S. mariners. It underpins U.S. maritime
defense policy.
As you know, the ranking Democratic member of the full
committee, Congressman Rahall, and I are both strong supporters
of the Jones Act. On behalf of Mr. Rahall and I, I want you to
know that we very much appreciate your quick action to schedule
this morning's hearing as we requested in our April 24 letter
to you and Chairman Mica.
Thank you.
Unfortunately, we missed such an opportunity to support the
Jones Act last year. In response to oil shortages attributed to
civil unrest in Libya, the President initiated in June 2011 a
drawdown from the SPR for only the third time in history.
Regrettably and contrary to longstanding policy under the Jones
Act, U.S. tankers carried less than 1 percent of the oil from
the SPR.
Instead the administration authorized 44 separate waivers
of the coastwise laws to allow foreign tankers to transport
this oil. The administration denied available U.S. carriers
this valuable and vital business.
U.S. industry has available capacity to move U.S. strategic
oil reserves on U.S.-flag ships putting U.S. mariners to work.
I do not know of anyone on this committee who agreed with these
controversial waivers, and Congress has responded accordingly
to uphold the integrity of the Jones Act.
First, Congress passed language to prohibit the use of
funds to issue future Jones Act waivers for SPR drawdowns for
the balance of this fiscal year until the administration has
taken adequate steps to ensure the use of U.S.-flag vessels.
Second, the House adopted an amendment offered by
Congressman Cummings and Congressman Landry that strengthens
information and notice requirements for any future Jones Act
waivers. These actions are warranted and helpful, but they are
limited in their scope and duration.
Consequently, I concluded that we need to look squarely at
the waiver process itself to ensure that future SPR releases
benefit both our domestic maritime industries and the overall
U.S. economy. With this thought in mind, it is my intention
this morning not just to look backward, but to look forward.
No one is satisfied with the status quo. Clearly we need a
constructive dialogue on how best to release SPR reserves. Now
is the time to begin that effort.
By working together with you, Mr. Chairman, I contend that
such a dialogue could produce a body of sensible, practical
reforms to the waiver process, reforms that work for the U.S.
economy, provide opportunities for our domestic maritime
industries, and put U.S. seafarers to work. Those are the
outcomes upon which we can agree, and I look forward to
beginning that dialogue this morning.
The Jones Act exists for good reason. Let's use it for good
effect.
Thank you.
Mr. LoBiondo. Thank you, Mr. Larsen. And, again, thank you
for the suggestion to move forward expeditiously with this.
The first witness today is the Honorable John D. Porcari,
deputy secretary of the U.S. Department of Transportation. Mr.
Porcari, the floor is yours.
TESTIMONY OF HON. JOHN D. PORCARI, DEPUTY SECRETARY, UNITED
STATES DEPARTMENT OF TRANSPORTATION
Mr. Porcari. Thank you, Chairman LoBiondo, Ranking Member
Larsen and members of the committee. I appreciate the
invitation to discuss the Maritime Administration's role in
determining Jones Act vessel availability during the Strategic
Petroleum Reserve drawdowns.
The Obama administration unequivocally supports the Jones
Act and is committed to the continued success of the U.S.
Merchant Marine. This administration has shown this
commitment----
Mr. LoBiondo. Excuse me. Is your microphone on?
Mr. Porcari. Yes.
Mr. LoBiondo. Could you pull it a little bit closer?
Mr. Porcari. Certainly.
Mr. LoBiondo. Thank you.
Mr. Porcari. The Obama administration unequivocally
supports the Jones Act and is committed to the continued
success of the U.S. Merchant Marine. This administration has
shown this commitment through the strong enforcement of the
Jones Act, including the imposition of the largest fine ever
recorded for a Jones Act violation and efforts to establish new
markets, including marine highway services that will promote
investment and create U.S. jobs in the maritime industry.
In addition, the administration is focused on increasing
cargo opportunities for U.S.-flag ships and crews through
agreements reached for the first time with Ex-Im Bank and the
Department of Energy.
In keeping with this commitment, the Obama administration
did not issue a blanket waiver of the Jones Act for the 2011
Strategic Petroleum Reserve drawdown, unlike previous
administrations. In June of 2011, President Obama authorized a
drawdown of the SPR as part of an international effort to
address the crude oil supply disruption caused by civil unrest
in Libya. The Energy Department offered 30 million barrels to
private buyers, largely oil companies and oil traders.
MarAd surveyed the maritime industry and determined that
the Jones Act coastwise tank fleet was already largely fully
employed. Only two tankers of the 56 in the Jones Act fleet
showed interest in carrying SPR oil during the drawdown period.
Owners of about a dozen tank barges also indicated general
interest.
Relying solely upon the small amount of excess capacity in
the Jones Act fleet to carry 30 million barrels of oil in 30
days on an emergency basis would have made the United States
unable to meet its international obligations and effectively
address the Libyan oil supply disruptions. Thus, waivers of the
Jones Act were considered.
The Department of Homeland Security's Customs and Border
Protection is responsible for waivers of the Jones Act. MarAd's
role is to determine the availability of Jones Act vessels to
perform the required carriage and advise CBP of its findings.
CBP, as you know, makes the final decision on whether or not to
issue a waiver.
During the 2011 SPR drawdown, MarAd provided CBP with
availability determine for each requested waiver. MarAd
considered each waiver request individually and made
determinations based on its own survey of the maritime industry
regarding whether vessel operators were interested and
available.
In certain cases, MarAd found available Jones Act vessels
and advised CBP accordingly. As a result, all SPR oil was moved
quickly to market without major disruptions to the regular
commercial movement of oil. In fact, one shipment was moved on
the Jones Act vessel, as you pointed out, an apparent first for
a major drawdown of the SPR.
The Obama administration firmly believes that Jones Act
implementation is consistent with the drawdown of the SPR. That
is why we did it. MarAd's goal is to maximize the use of
available Jones Act vessels during an SPR drawdown, and MarAd
believes this can be accomplished without impacting a
drawdown's effectiveness.
Future SPR drawdowns, should there be any, may lead to
additional opportunities for Jones Act vessels as MarAd is
worked with DOE, DHS, and DOD to strengthen SPR auction
processes to further include opportunities for Jones Act
carriers.
Mr. Chairman, thank you for this opportunity to discuss
MarAd's role in the SPR drawdown process. I am happy to respond
to any questions you and members of the subcommittee may have.
Mr. LoBiondo. We thank you very much. I am first going to
turn to turn to Mr. Larsen for questions.
Mr. Larsen. Thank you, Mr. Chairman.
Thank you, Mr. Secretary.
Contrary to your statement, the maritime industry will
insist that there was available capacity in the U.S.-flag
tanker and barge fleet to carry a substantial portion of the 30
million barrels. I am not sure how you made the statement that
you did, but I think I would like to hear specifically can you
tell us on what basis the DOE, CBP and MarAd conclude that
American vessels were not available.
Mr. Porcari. OK. I would be happy to, and it is an
excellent question.
Let me first go back to this SPR release itself, and as the
Chairman correctly pointed out, it began with a blanket waiver
of the Jones Act. It is important to point out that the
Maritime Administration and the Secretary quickly got involved
at the highest levels to make it clear that we wanted to make
Jones Act vessels eligible and that we believed that a case-by-
case determination of Jones Act eligibility was the best way to
do that.
Just to run through the math quickly, there were a total of
56 U.S.-flag tankers that were coastwise qualified. Eleven of
these are dedicated crude carriers. Two of them were available
during the recent drawdown.
On the tank barge side, there were 30 U.S.-flag coastwise
qualified tank barges. First on the tankers, of the two that
were listed as available, upon further investigation, one was
engaged under contract in Brazil at the time and would have
taken 14 days to get to the U.S. coast. The other one was in
dry dock.
Of the available barges, as I mentioned, there are 30
coastwise qualified barges. Fifteen of the thirty had issues
that could arguably be said were impediments to their use.
Three of them required shipyard work. Four required a Coast
Guard waiver for not having crude oil washing systems. Seven
were offered with the limitation that the charter had to clean
the barges with three loads of heating fuel to make them
suitable for the shipment, and finally, one of the barges did
not have a vapor recovery system which prevented it from being
used at certain of the loading locations.
The fact is MarAd declined three nonavailability waiver
requests because we believe U.S.-flag vessels of sufficient
capacity were available on the timeframe required under our
international obligations for the strategic petroleum reserve
release.
Mr. Larsen. So can you talk to us about the role that the
500,000 barrel lot size plays in excluding potential carriers
from participating in the SPR drawdown and how that impacted
U.S.-flag carriers, and where the 500,000 lot size comes from?
Mr. Porcari. The 500,000 barrel lot size for the sale of
the crude oil was set by the Department of Energy. The
transport, the vessel transport of oil was originally set at
350,000 barrels. When we saw that there were two tankers that
had less than 350,000 barrels of capacity but over 300,000, we
prevailed upon the Department of Energy to lower that
requirement from 350,000 barrels to 300,000 barrels so that
those two at the time what we thought were available tankers
would qualify for that. So we actively engaged with DOE, and I
would say that DOE was quite willing to lower the 350,000
barrels to 300,000 barrels for the transport of it.
Ultimately, as I mentioned, those two tankers were not
available in the timeframe for specific reasons, but both
through that release and should there be future releases, we
believe one of the important things that we can and will do is
work aggressively with Department of Energy based on real
availability of U.S. tankers and tank barges to write them into
and make the Jones Act vessels eligible as much as possible.
Mr. Larsen. It would seem that would be at least the spirit
of the Jones Act, if not the law. Does the 500,000 barrel lot
size create a barrier to participation for U.S.-flag carriers?
Mr. Porcari. It is my understanding----
Mr. Larsen. So my understanding, that is a purchase lot
size.
Mr. Porcari. Right.
Mr. Larsen. And then from there it could be divvied up or
aggregated after that.
Mr. Porcari. Exactly. It is important to distinguish
between the purchase lot size of 500,000 and the vessel
transport lot size. And given the makeup of the U.S. fleet,
tankers and tank barges, we think that having the number as low
as possible for maximum eligibility is important.
It is also critical, obviously, that the true availability
be within the timeframe designated in the SPR release. We
believe very strongly in the Jones Act. It is akin to an
insurance policy that the Nation has, and you cannot buy
insurance after your house is on fire.
When we need the Nation's Jones Act fleet and at least as
importantly, the U.S. crews that come with it, whether it is a
natural disaster or a defense emergency, we cannot build a
fleet then. We think this is an opportunity for the Jones Act
fleet, just as we have prevailed upon the Ex-Im Bank and Energy
to start using Jones Act vessels for project cargos where they
were not specifically included before; we see this as an
opportunity. And, again, I would point out that the two
previous releases by the George H.W. Bush administration and
the George W. Bush administration had a blanket waiver of the
Jones Act. We do not think that is the right thing to do.
Mr. Larsen. The next panelist will have some, I think,
points on the bidding process, and so I want to find out there
are some bookends in this debate regarding the role of SPR
bidders. It is my understanding that oil purchasers and traders
requested that their entire lot be transported in one trip, but
that was not a requirement of DOE's Notice of Sale.
So why do we agree to these requests when the evidence is
clear that it can unfairly disadvantage U.S. carriers?
Mr. Porcari. We had, at the time, and subsequently have had
very productive discussions with DOE about optimizing the
ability of U.S.-flag fleet, given the fleet mix that we have,
to participate in these releases balanced with at the end of
the day this SPR release is for national strategic reasons, and
the timing of it in most cases is dictated by international
releases designed to impact the market positively.
We think we have certainly learned lessons from this first
ever attempt to bring the Jones Act vessels into an SPR
release. We have had very good discussions, including with
industry. It is important to point out that we convened a
meeting with industry after this release, and one of the clear
homework items that we have collectively is we need and
industry needs to provide better real time, true availability
information so that in determining whether there are Jones Act
vessels available, we know whether they are truly available in
that timeframe, if they're of sufficient size, and if they can
work in the loading facilities that DOE has designated.
We think working closely on those on an individual basis in
the future will actually maximize the ability to use Jones Act
vessels.
Mr. Larsen. Do you think the desires of the purchasers of
the SPR oil to use large, foreign-flag vessels puts pressure on
DOE and you to supersede clear Federal law on Jones Act to
require American vessels first?
Mr. Porcari. I do not, sir. I think that originally there
was a blanket waiver and we prevailed in an interagency
discussion to have a case-by-case waiver process shows that it
can and will work. Again, I think it is clear, and I think that
industry would agree there are clear lessons learned from this
release that we can do it more effectively in the future.
In this day and age real time true availability information
is one of the ways we need to do that. But I think it is clear,
and this administration has been very strong in supporting the
Jones Act and supporting U.S. manufacturing and industries in
general. This is an across the board attempt by the
administration to maximize U.S. jobs, maximize U.S. employment,
and quite frankly, to keep the Jones Act fleet viable for the
reasons stated in the original Jones Act.
Mr. Larsen. Mr. Chairman, I have just one more set of
questions for this witness right now if you do not mind. It has
to do with the future.
And can you be more specific about what steps the
administration is doing to ensure full compliance with the
Jones Act and new requirements enacted by this Congress last
fall with respect to the waiver process in the event of another
drawdown this year, knowing full well, I think, that that
probably runs out September 30th? But this Congress has shown a
clear intent on what we want to see happen clearly after the
existing authority runs out.
Mr. Porcari. I will be happy to. And, first, Congress'
intent is very clear, and I would say it is very consistent
with what the administration wants to do. The nature of an SPR
release is that there is little or no warning. So it puts a
premium on having our act together and having an interagency
process in place in advance before any SPR release is
announced.
We have had ongoing and very extensive discussions at the
senior levels, for example, with my counterparts in both the
Department of Energy and the Department of Homeland Security on
how we can do the process better in the future. That includes
an active partnership with industry on an ongoing basis so if
there is a snap decision to have an SPR release, the process is
in place. The availability information is better known.
In this release, for example, the Maritime Administration
by email had previously used brokers to survey availability.
They sent out an email to industry at the time. We think there
are better real time ways to have that kind of information
including if there are vessels that are under short-term
contract that can get out from those contracts and do this
work, knowing those kinds of particulars.
Mr. Larsen. There may be further questions for the next
panelist I have, but I yield back.
Before I do, I just want you to know I have to step into
the anteroom to visit my hometown Boys and Girls Club folks. So
I will just be right there, but I will be right back.
Mr. LoBiondo. And, of course, you will be listening as you
are in there, right?
Mr. Cravaack.
Mr. Cravaack. Thank you, Mr. Chair.
I appreciate it, Mr. Secretary, your being here today.
Section 501(b) of the Title 46 requires administration of
MarAd to determine the suitability of Jones Act qualified
vessels are not available to carry the cargo before a waiver
can be granted, correct?
Mr. Porcari. Correct.
Mr. Cravaack. OK. How did MarAd determine the
nonavailability of U.S.-flag vessels for the SPR drawdown?
And did MarAd reach out to the U.S.-flag industry?
Mr. Porcari. Yes, we did reach out to the U.S.-flag
industry. Availability means available within the timeframe of
the SPR release, including the total movements required for
that particular lot sale, meeting the technical requirements,
whether it's Coast Guard licensing, vapor recovery systems,
having the tankers or the tank barges in a condition where they
can receive crude oil. They may require cleaning, for example.
Those all are a part of that.
We then make that information that determination available
to Customs and Border Protection in the Department of Homeland
Security, who ultimately makes the waiver determination.
What we are focused on going forward is being able to do
that as quickly in as real time a basis as possible, and our
intention is wherever possible to make opportunities available
for the Jones Act fleet rather than having them written out in
a blanket way by blanket waivers as has been done previously.
Mr. Cravaack. OK, sir. Thank you very much.
And with that said then, according to data provided by
MarAd, only one U.S.-owned, built, flagged, and crewed vessel
moved SPR oil during the 2011 drawdown. That vessel moved less
than 1 percent of the total SPR oil that moved on the water.
So are you saying, sir, it is the DOC's position that there
was only one qualified Jones Act vessel available at that time?
Mr. Porcari. Actually, sir, we declined three
nonavailability waiver requests. One of the three ultimately
resulted in the barge movement that you mentioned. The other
two were shipped by other means, perhaps pipeline. I am not
sure, but we did this on a case-by-case basis based on that lot
of shipment, the best real time information we had on
availability, and meeting that timeframe.
And, again, everything else being equal, the larger the
vessel, the less movements that are needed and the easier it is
to meet the timeframe.
Mr. Cravaack. OK. Then how many waivers were actually
granted for foreign-owned, built, flagged, and crewed vessels
for the 2011 drawdown?
Mr. Porcari. I believe the number is 44, but I need to go
back and verify that.
Mr. Cravaack. OK. Forty-four, and again, only 1 percent of
U.S.-flag maritime fleet vessels could actually rise to the
occasion?
Mr. Porcari. One of the things that we found, Mr. Cravaack
in actually doing the determinations, and it is both a good
news and a bad news scenario, is that much of the U.S.-flag
fleet was engaged, was under contract or subcontract, and
actually was working at the time. We believe that with better
information and with more real time information, we should have
better availability, but it will entirely depend on the market
conditions at the time.
The status of the Jones Act fleet, if it is employed
elsewhere, the timing of the release, again, this is the first
time that any administration has tried to use the Jones Act
fleet during an SPR release. We believe, just like we have done
with project cargos with the Ex-Im Bank and with the Department
of Energy, that it is an opportunity to write the Jones Act
fleet into rather than exclude it from business.
Mr. Cravaack. I truly believe that a strong maritime fleet
is essential to our national security.
Mr. Porcari. It truly is.
Mr. Cravaack. I am a strong proponent of that. So with that
said, what outreach has MarAd had with the representatives of
U.S.-flag industry and labor in the wake of the 2011 SPR
drawdown to address their concerns and the concerns that you
just spoke about right now?
What are we doing to make sure that our fleet is ready to
go when we need her?
Mr. Porcari. One of the things that we did in the wake of
the last SPR release was the Maritime Administrator and I
convened a meeting with industry, Mr. Allegretti and others, on
this specific issue and partly to deconstruct the events during
that release, but mostly looking forward how we can do this
better together.
Ultimately this has to be a partnership. We believe very
strongly in this partnership, and we think that by being smart
and quick about this process that we in the future, should
there be a future SPR release, that we can actually have better
participation by the Jones Act fleet, again, depending on its
actual availability.
Mr. Cravaack. Thank you, Mr. Chairman. I appreciate your
indulgence of the time, and I yield back.
Mr. LoBiondo. Thank you, Mr. Cravaack.
Actually Mr. Larsen and Mr. Cravaack covered an awful lot
of what I had, but to go over this a little bit more, so you
are, I think actually admitting that there was a de facto
500,000 barrel lot size threshold.
Mr. Porcari. For the sale, not necessarily the transport,
Mr. Chairman. In other words, the DOE sale advertisement had a
500,000 barrel minimum for bidding on it. It was our intention
and in our discussions with DOE we wanted to make sure that the
transport by any successful bidder was in quantities small
enough that the U.S.-flag fleet could actually use it.
So, again, DOE originally had 350,000 barrels as the
minimum threshold. There were not any available U.S. tankers at
350,000. There were two potential available tankers at 330,000.
We got DOE to lower that to 300,000 because we wanted those
tankers to be used.
Mr. LoBiondo. So how many actual shipments were less than
500,000?
Mr. Porcari. I do not know offhand, and on a lot by lot
basis we will be happy to get that information.
Mr. LoBiondo. You know, we are not trying to give you a
hard time, but this just kind of is not gibing here that only,
you know, 1 percent of the movement can come from U.S.-flag
vessels, and we just need to try to get to the bottom of it.
But mostly since we cannot undo what was done, to try to
understand this process for the future and, you know, if the
industry was, you know, at 100 percent employment and
everything was fine, you know, OK, there is just not
availability. But we are just getting a different story about
the availability.
So I do not want to be repetitive with the questions again
because Mr. Larsen had most of these questions. I will leave it
at that for now.
I would like to make note that Mr. Cummings is wrapped up
in a markup, but that he had questions specifically, and we
will take them for the record so that Mr. Cummings can get his
questions answered.
And, Mr. Porcari, we thank you very--oh, Mr. Landry, thanks
for joining us. OK. You are recognized.
Mr. Landry. Thank you, Mr. Chairman.
Deputy Secretary, this committee, I believe, is growing
tired of me saying that I represent more Jones Act jobs than
any other Member in this body. Twenty-eight thousand men and
women are employed in my district because of the Jones Act.
Considering this information, do you find it ironic that I
also represent the destination of more SPR releases transported
on foreign-flag vessels than any other Member in the country?
In other words, all of the oil released or a vast majority
of the oil that is released out of the strategic reserve is
then shipped to my district, but not by American-flag vessels
while at the same time, I represent more mariners than any
other Member.
Mr. Porcari. I would classify it as an opportunity. We
share the strong belief that the Jones Act both protects U.S.
jobs and protects U.S. national interests, and the purpose of
reversing what had previously been a blanket waiver in all
cases on releases and going on a case-by-case basis was to
provide whatever opportunities we possibly could for Jones Act
vessels and their U.S. crews to participate.
And we think we clearly learned lessons from this release.
Should there be another one in the future, sir, we believe that
a close partnership with industry and better real time
information will allow us to maximize the Jones Act
participation.
Mr. Landry. Are you saying that the lessons that were
learned move you so that if we have another release that the
process that you would use would be more transparent and more
applicable to sticking to the preamble of the Jones Act?
Mr. Porcari. First, in terms of transparency, we posted the
vessel availability on the MarAd Web site as a way to make sure
we got the word out. I think from a policy point of view, the
most important decision was made immediately, which was unlike
previous administrations not to grant a blanket waiver and just
waive the Jones Act, but instead to focus on opportunities to
get Jones Act vessels and crews involved.
We agree with both the letter and the spirit of the Jones
Act in the sense that it exists for a reason, and that reason
is that it is in the vital interest of the United States to
have a strong U.S.-flag fleet and even more important than the
vessels themselves in some ways, the crews, the U.S. crews.
Mr. Landry. So are you saying that you believe that you all
went through every possible scenario and worked diligently to
uphold the preamble of the Jones Act in the process that you
all used in granting these waivers? I mean, do you feel that
today or do you feel that moving forward you can do a better
job of insuring that American-flag vessels have an opportunity
to carry it?
Because it bothers me that while mariners that I represent
sit on a dock, they get to watch a foreign-flag vessel pass
their dock with oil, with oil paid for by their hard earned tax
dollars, and that oil is being transported by foreign-flag
vessels.
And I am just trying to ensure that me and you have an
understanding and that what you're telling this committee is
that, look, maybe we did not do as good of a job as we could. I
mean, you feel like you have, and that is what I am trying to
understand. Do you think that you can take some steps in the
future that would further strengthen the ability of U.S.-flag
vessels to have a seat at this table?
Mr. Porcari. The short answer is yes. We believe there
clearly are steps that we can take in partnership with industry
to do a better job. As with anything else, we should be
learning from experience, and this was the first time that
anyone tried to get the Jones Act fleet involved in an SPR
release.
Mr. Landry. And let me just tell you I appreciate the fact
that you recognize that you can do a better job. Not many
people come before us and admit, and I think that is very noble
of you. I want you to know that, and I hope that you live up to
that word and the next time we do a better job of getting more
U.S.-flag vessels involved.
Mr. Porcari. Sir, there is not a day that goes by that I do
not realize I can do a better job, and we should all be
learning from it. I very much look forward to working with you
going forward should there be another release.
And in the nature of the releases, it is quick and with no
warning so that it can impact markets. That puts a premium on
doing the work upfront very collaboratively. We have had some
very good collaborative work with our colleagues at the
Department of Energy and the Department of Homeland Security
and others in both lessons learned and should there be another
release, how it can be done better, just as we are doing with
trying not to grant Buy America waivers on the manufacturing
side, just as we are doing with the Ex-Im Bank agreement that
we have where they are using U.S. vessels and we are not in the
same way before, and just as we are doing with the Department
of Energy. It was not necessarily using U.S.-flag ships for
project cargo shipments and they are now.
We see every one of these as an opportunity, even if it is
at the margins. These margins add up to strengthen U.S. jobs
and to get maximum U.S. employment for the Jones Act that we
need in case of emergency.
Mr. Landry. Thank you, Mr. Chairman. I yield back.
Mr. LoBiondo. Thank you.
Mr. Cummings.
Mr. Cummings. Thank you very much, Mr. Chairman.
Deputy Secretary Porcari, a waiver was issued. First of
all, it is good to see you again.
Mr. Porcari. It is good to see you.
Mr. Cummings. A waiver was issued to Marathon Petroleum on
July 25, 2011, which stated and I quote, ``You have purchased 1
million barrels of crude oil from the SPR, and this portion
represents 500,000 barrels.''
The waiver noted that MarAd had made a nonavailability
determination regarding the subject request. Looking at MarAd's
nonavailability determination it states, and I quote, ``We have
found no single U.S.-flag vessel available to carry the entire
lot of cargo in one trip as requested by Marathon.''
Similarly, on July 20th, a waiver was issued to J.P. Morgan
Ventures Energy Corporation for the movement of 500,000 barrels
of a $1.5 million barrel purchase from the SPR. Regarding this
waiver, MarAd wrote, and I quote, ``We found no single U.S.-
flag vessel available to carry the entire lot of cargo in one
trip as requested by J.P. Morgan.''
The question is this. It is my understanding that there
were Jones Act qualified vessels capable of carrying oil
released from the SPR. Why were the Jones Act waivers for
Marathon and J.P. Morgan Ventures and for dozens of other firms
issued? Why is that?
Mr. Porcari. Mr. Cummings, we tried to make sure we had
good information on availability. I do not know those two
specific ones on July 25th and 20th of the top of my head. What
I would like to do because I want to give you a precise answer
is actually go back and make sure we review those records and
find out the particular circumstances of those.
Each of the waiver requests was based on availability at
that specific time, based on that specific shipment and with
whatever other parameters were specified. So I cannot
specifically comment on those two without some further
research, but I would be happy to do that.
Mr. Cummings. In these cases, Marathon and J.P. Morgan were
already moving less than the entire amount of the oil they had
purchased. Given that the Jones Act is the law of the land, I
want to know, and I am sure you can get back to me on this, why
were Marathon and J.P. Morgan required to break down their
shipment sizes and move only the number of barrels that could
be carried on Jones Act qualified vessels?
In other words, why would MarAd write that there was no
single U.S.-flag vessels available to carry the entire lot of
cargo in one trip as J.P. Morgan requested? And why was J.P.
Morgan not required to change its request or use more than one
single vessel so that it could comply with the law?
That is what I am concerned about.
Mr. Porcari. It is a fair question, and I would like to get
you the particulars on that. I do know the timeframes of the
actual transport are one of the variables that were important,
but these are two specific transactions, and I think we need to
look into those specifics.
I would further comment that this was sea change, if you
will, for the bidders. In other words, up until this time when
the Obama administration specifically tried to make Jones Act
vessels available, all previous releases got blanket waivers.
Bidders on SPR oil never had to think about or worry about
U.S.-flag fleet availability.
We have all learned lessons from this release. One of the
lessons is by the bidders who need to understand and I think
now do understand in a much more specific way that we are
serious about this and that they need to really work to find
availability, and so I will get back to you on those two.
Mr. Cummings. One last thing. Based on the emails available
to the committee, was not MarAd aware at the time that it was
issuing nonavailability determination that lots of 500,000
barrels might exceed the carrying capacity of all Jones Act
qualified vessels? If so, did MarAd inform the Department of
Energy that the lots should be broken into smaller sizes to
ensure it could move on Jones Act compliant vessels?
Mr. Porcari. Yes, my understanding is the two things. The
minimum bidding quantity that DOE specified which was 500,000
barrels and then separately the transport, which could be less
than 500,000 barrels, I am told that 500,000 is basically a
yardstick in the industry that they use.
Our contention then and now is that does not mean you have
to transport 500,000 barrels in one crude carrier, which would
exclude all but the largest U.S.-flag ships that are fully
engaged in Alaska trade, for example, that the transport could
be in smaller quantities. That is why when DOE first put out
350,000 barrels as the minimum for transport, we prevailed on
them to lower to 300,000 because it would allow two U.S.
tankers that we thought were available at the time to actually
transport the oil.
Mr. Cummings. I see my time is up. Thank you very much.
Mr. LoBiondo. Mr. Cummings, for your information, the
Department of Energy and the American Petroleum Institute were
both invited today, but declined our invitation. I think I
could guess why.
Mr. Cummings. I thank you, Mr. Chairman.
Mr. LoBiondo. Mr. Harris.
Dr. Harris. Thank you very much, Mr. Chairman.
And, Mr. Deputy Secretary, it is good to see you again, and
thank you for the work you did for Maryland as our
Transportation Secretary.
Let me follow up on the gentleman from Maryland and what he
asked because according to press reports, you know, well, I
guess it was almost a month before those determinations were
made for Marathon and J.P. Morgan that the Congressman referred
to. Senior officials from DOE, MarAd, you know, conducted a
conference call with potential drawdown. This is a month before
they grant it, where a senior DOE official indicates that Jones
Act waivers would be granted to bidders carrying 500,000
barrels or more.
Well, if I were them and I had a DOE official that said,
``Oh, just say you are going to transport 500,000 because we
will get the waiver,'' that sounds like, you know, someone
either was not aware of the Jones Act or the importance of the
Jones Act to maintaining our fleet and the economic importance.
Now, I find this a little interesting because the
Department of Energy comes before our committee and the
Science, Space and Technology and all the time talks about
creating American jobs, and this is one of the goals of the
department and all, and here is a DOE official a month before
waivers are granted that specifically the reason for the waiver
is that the bidder asked to transport 500,000 barrels. Well, a
month before, they were told, ``Well, basically you might as
well ask for it because we are going to grant you the
waivers.''
What is going on? I mean, why is the DOE involved? They are
not involved in the waiver process, are they?
Mr. Porcari. No, they are not specifically involved in the
waiver process, and in fairness to our DOE colleagues, the two
previous SPR releases by two previous administrations had
blanket waivers. This is not a process that they had been
through before, and we worked very closely with them and very
aggressively to make sure wherever possible Jones Act vessels
could be included.
I cannot comment on the specifics of the press report. I do
not know it offhand, and I am leery about press reports in
general, but there was certainly an education process with
industry, with the bidders on the crude oil for the Jones Act
process.
To the extent they were familiar with it, they may not have
been familiar with all of the details and the fact that the
waiver where the Maritime Administration part of it, sir, is we
determine whether vessels are available based on those
individual circumstances, and then Customs and Border
Protection in DHS actually either does or does not issue a
waiver based on that.
So it is a partnership in that sense. Industry had a number
of questions about this. We tried to answer those questions,
and I am talking about the industry bidding on the oil in this
case. We in DOE tried to answer those questions.
I think going forward, they clearly understand how serious
we are about using wherever possible Jones Act vessels and
crews.
Dr. Harris. Sure. No, and I appreciate that, you know, we
say that in the past it has been done, but in the past we are
not in, you know, the third year of what the President admits
is the largest economic downturn since the Great Depression. I
mean, this is not the same instance.
We had an opportunity to use American-flag vessels with
Americans, American labor, and we decided not to. And so one
question I have is, is the DOE involved?
The DOE in previous administration did not have the
authority to give waivers either, did they? You said the DOE
official just, I guess, assumed it because previous
administrations had done it?
Mr. Porcari. What had happened previously, and I would
respectfully disagree with the contention. We saw this as an
opportunity to bring the U.S.-flag fleet in rather than exclude
it.
There have been two SPR releases prior to this one by the
George H.W. Bush administration and the George W. Bush
administration.
Dr. Harris. Sure. No, I understand the history, but you
know, is it true that only 1 percent of the oil was delivered
on U.S.-flag vessels?
Mr. Porcari. We basically did not grant three waiver
requests, and two of them ultimately used other means to
transport the oil. The one waiver request that we denied or
that we recommended denial, DHS denied and it was complied
with, transported about 150,000 barrels. That is right.
Dr. Harris. Out of how many? One hundred and fifty thousand
barrels out of how many?
Mr. Porcari. The total release was 30 million.
Dr. Harris. Well, I suspect that we could probably do a
little better job than that in the future, and I hope we are
serious about it.
Can you get me information? I assume that the department
was part of that conference call on June 28, 2011?
Mr. Porcari. We did have a Maritime Administration
representative on that, and I will be happy to get you----
Dr. Harris. Could you determine whether that, in fact, is
true, that on that call, you know, the DOE official indicated
that waivers would be granted?
And again, Mr. Chairman, I wish the DOE was here to answer,
you know, under what authority they are making Jones Act
determinations in conference calls with bidders that I think
the evidence shows resulted in what would be expected. If you
are told that a waiver is going to be granted, why bother to
look for an American vessel when you are already told upfront
that waivers would be granted?
Thank you very much, Mr. Chairman.
Mr. LoBiondo. Mr. Cummings, back to you.
Mr. Cummings. Thank you very much, Mr. Chairman. I am only
going to take a few minutes. I just wanted to just say a few
words.
I am deeply concerned about the issuance of waivers to
allow Jones Act qualified vessels to carry cargo between United
States ports, including the issuance of waivers following the
2011 release from the Strategic Petroleum Reserve. The Jones
Act is the law of the land. It is the cornerstone of our United
States maritime capability, and it should be waived only in the
interest of rarest of circumstances.
To increase transparency surrounding the issuance of
waivers, Congressman Landry and I introduced H.R. 3202, the
American Mariners Job Protection Act. The bill would require
MarAd to include in its assessments of the availability of
Jones Act compliant vessels information on the actions that
could be taken that enable Jones Act qualified vessels to carry
the cargo for which a waiver is sought.
MarAd would also be required to publish its determinations
on its Web site and provide notification to Congress when a
waiver is requested or issued.
I thank the Chairman, Mr. LoBiondo, and Ranking Member
Larsen, as well as Ranking Member Rahall and other members of
this subcommittee for their support.
Congressman Landry and I most recently offered this
legislation as an amendment to the National Defense
Authorization Act of 2012, and it was adopted. And I certainly
hope that it will be included in the final NDAA conference
report.
On July 15, 2011, I wrote to Secretary LaHood to inquire
about the issuance of waivers to enable Jones Act compliant
vessels to carry oil released from the Strategic Petroleum
Reserve. On August 29, 2011, Secretary LaHood provided copies
of some documents associated with approximately 20 of the
waivers. I appreciate the information Secretary LaHood
provided, but I am deeply disappointed in DHS and DOE are not
here today to discuss this matter.
I have tried without success to assemble all of the
agencies that are involved in the waiver process, and again
today I see that the agencies will simply not come together to
provide the clarity we need about exactly how this process is
conducted.
I continue to believe that we need to get all of the
parties together in one room to understand what occurred in
2011 and what steps need to be taken in the future to ensure
that there is compliance with the Jones Act.
Thank you very much, Mr. Chairman.
Mr. Landry, I understand you have a brief statement and/or
question.
Mr. Landry. Yes. Mr. Chairman, I just wanted to try to
clarify an answer that the Deputy Secretary gave to Mr.
Cummings a while ago when he mentioned or I thought I heard him
say that DOE set the 500,000 barrel limit or you mentioned that
the 500,000 barrel limit came from DOE.
Mr. Porcari. It is in the DOE prospectus for sale of the
SPR release.
Mr. Landry. Well, Mr. Chairman, I am holding the Notice of
Sale from I believe DOE, which says that the minimum delivery
lot sizes are 100,000 barrels for pipeline and 300,000 barrels
for vessels.
Now, nowhere in this notice do I see 500,000. In fact, we
got to 500,000 because someone slipped information to the
industry telling them that if they went to 500,000 they would
get the waivers.
Now, you and I just had a discussion about how we move
forward in helping our mariners in this country, and the way we
help them is by making sure that when DOE says 300,000 barrels
because they know that we can use U.S.-flag vessels to move
their cargo at this volume, that we try to adhere to it.
So I just wanted to correct the record, Mr. Chairman, in
that the Deputy Secretary said it was DOE that issued a 500,000
barrel limit, and would you like to retract that?
Mr. Porcari. No, there are two separate things here, Mr.
Landry. One is the minimum bid amount that bidders for the oil
can bid on, and that is 500,000 barrels. The delivery----
Mr. Landry. No, no, no. That is 300,000.
Mr. Porcari. The delivery of the product was 300,000
barrels. It was originally, I would point out, 350,000 barrels,
and we prevailed upon DHS or DOE to lower that because we knew
there were two tankers that could carry up to 330,000 barrels.
So you are absolutely right about the delivery size at
300,000, and we specifically asked them to lower it from 350
which it originally was to 300 so that two U.S. tankers that we
thought were available at the time could get that business.
Mr. Landry. Did they get the business?
Mr. Porcari. They did not. Of the two tankers one was under
contract in Brazil and the other one was either in or headed to
dry dock.
Mr. Landry. Thank you, Mr. Chairman.
Mr. LoBiondo. Mr. Harris.
Dr. Harris. Thank you.
Just a very brief followup because your testimony was that
we actually shipped 150,000 barrels. That is the only shipment
on American-flag vessel.
Mr. Porcari. Yes, and that was actually a barge. So, in
other words----
Dr. Harris. So 300,000 was not the real minimum. I mean,
that document says it is supposed to be 300,000. I mean----
Mr. Porcari. They can always break up the shipment and do
it with two or three barges, which is something that we
encouraged wherever possible.
Dr. Harris. So you could have broken up a shipment of
500,000 into a 300 or a 350 and 150 also.
Mr. Porcari. That is correct. That is correct.
Dr. Harris. So why was that not encouraged?
Mr. Porcari. It was, in fact, encouraged. Again, for the
industry bidding on the oil, we encouraged them as part of this
process to look at multiple shipments. So if they bid for
500,000 barrels, they had the ability to ship it on three
barges or a tanker and two barges or whatever.
Dr. Harris. And that was not encouraged in the June 28th
phone call, that June 28th conference call. I guess you will
try to get me the records, but again, apparently on that
conference call DOE said 500,000 is OK and you'll get a waiver.
That does not sound like encouraging breaking up shipments.
Mr. Porcari. Well----
Dr. Harris. How did the department encourage breaking up
shipments if not on a conference call like that when you have
the bidders on the line saying, you know, ``How are you going
to ship this?''
I mean, again, it is just not apparent to me that that
encourages breaking it up if you say, ``Look. You are going to
get a waiver if you request a shipment of 500,000.''
Mr. Porcari. No, it is a fair question. One of the purposes
of a case-by-case waiver determination was to see with those
particular circumstances on those dates within whatever
parameters were in that particular bid, if there was a way to
use U.S. vessels, any combination of U.S. vessels.
And we think one of the lessons learned, quite frankly, is
that better real time information on combinations of vessels
that might be available might well encourage more U.S. vessel
usage, and we think going forward. And we have worked closely
with our colleagues in Energy and DHS and others, for example,
on tabletop scenarios since the last release to try to figure
out the mechanics of encouraging and knowing to the extent
possible U.S. vessel availability.
Dr. Harris. OK. Thank you.
Thank you for giving me that extra time, Mr. Chairman.
Mr. LoBiondo. OK. Mr. Porcari, I thank you very much for
being here today. We are going to take a short, brief
adjournment so we can move to, or recess so we can move to
Panel 2, and we will be proceeding very directly.
Mr. Porcari. Thank you, Mr. Chairman.
[Recess.]
Mr. LoBiondo. The committee will come to order.
Our second witness this morning is Mr. Tom Allegretti,
president, The American Waterways Operators (AWO), and
testifying on behalf of AWO and the American Maritime
Partnership.
Mr. Allegretti, thank you for being here. You are
recognized.
TESTIMONY OF THOMAS ALLEGRETTI, PRESIDENT, THE AMERICAN
WATERWAYS OPERATORS (AWO), ON BEHALF OF AWO AND AMERICAN
MARITIME PARTNERSHIP
Mr. Allegretti. Thank you, Mr. Chairman, for the
opportunity to testify today on behalf of AWO and the American
Maritime Partnership.
The domestic maritime industry shares your goals for
today's hearing, to shed light on the circumstances that gave
rise to approximately 50 Jones Act waivers during last year's
drawdown of the Strategic Petroleum Reserve and to ensure that
history does not repeat itself in the event of another drawdown
this summer.
The Jones Act is the law of the land for good reason. It
undergirds the national security, homeland security, and
economic security of the United States. What we witnessed last
year was the hollowing out of the Jones Act by unelected agency
officials. Taking a critical look back at that experience is
essential to insuring that as we move forward, such a travesty
never happens again.
What happened last year was illegal and unacceptable.
Administration officials took actions that effectively excluded
American vessels owned by American companies, crewed by
American mariners from transporting American oil between
American ports. They did this by establishing an arbitrary,
unwritten minimum lot size for vessel movements that had no
basis in law.
Potential purchasers of SPR oil were promised Jones Act
waivers in advance, and the administration delivered on those
promises even as available American vessels and American
mariners sat idle. The result, approximately 50 Jones Act
waivers and only one lifting by a U.S.-flag vessel. More than
99 percent of the oil moved on foreign vessels with foreign
crews.
We appreciate the subcommittee's oversight in probing how
this disregard for the law could have transpired, and we are
troubled that Deputy Secretary Porcari has not been joined
today by officials from the Department of Energy. We hope that
Congress will continue to press all of the departments that
share responsibility for the mismanagement of last year's SPR
drawdown for answers to this fundamental question: how a
Federal action intended to help the American economy could have
been carried out under unwritten ground rules that expressly
favored foreign companies and foreign workers to the detriment
of Americans.
We also hope that Congress will continue to press the
administration to clarify its plans to ensure compliance with
the Jones Act. And with the new requirements governing the
waiver process that you all enacted last fall, clarity is
especially needed on the steps the departments will take to
make full use of American vessels first in the event of another
SPR drawdown.
We appreciate DOT and the Maritime Administration meeting
with AWO and AMP this spring to discuss the availability of
American vessels and their suitability for the movement of SPR
crude, but we are disappointed that the Department of Energy
has been unwilling to meet with us, and we are especially
troubled that the administration has not yet made clear what
actions it will take to avoid a repeat of last year's debacle.
Chairman LoBiondo, Ranking Member Larsen, members of the
subcommittee, I want to be very clear about what the American
maritime industry is saying with respect to another SPR
drawdown. First, we are saying that the Jones Act requires the
use of American vessels to move crude oil from the SPR to
another U.S. destination. Nowhere does it say that American
vessels must be used only if they meet arbitrary, unwritten
criteria developed secretly by an administration official.
Second, we are saying that American vessels and American
mariners are available in substantial numbers to move SPR crude
today and that they are fully capable of doing this work. We
are not saying that the domestic fleet has the capability to
move all of the oil in a drawdown within a short period of
time.
And, third, we are saying that the administration should
establish procedures that make clear that available American
vessels will be used first and to the full extent of their
capability and availability, and that Jones Act waivers will be
issued only when no American vessels are available.
Our message is simple. The law is clear. American vessel
owners and American mariners are ready, willing and able to do
what they do best, move cargo safely, securely, and
economically for the benefit of our customers and our country,
but in order to do so we need the administration to follow the
law.
Thank you again for the opportunity to address this most
serious situation today.
Mr. LoBiondo. Thank you, Mr. Allegretti.
An explanation offered by the Department of Energy and
MarAd for not contracting Jones Act qualified vessels is that
U.S.-flag vessels carrying less than 500,000 barrels cannot
meet berthing and/or discharging parameters set forth by many
receiving facilities. Do you believe this is true?
Mr. Allegretti. I do not. But I will say this is
reflective, Mr. Chairman, of the essential problem that we have
with the administration and which you heard repeated here this
morning. There is a mentality that resides within the
Department of Transportation and the Department of Energy that
essentially starts from the premise that what are the
impediments, was the word used in the Secretary's statement
submitted; what are the impediments to the use of American
vessels and how do we deal with those impediments, and we have
heard a range of them.
American vessels are too small. They are too few. Well,
what is the sufficient number that makes them not too few? What
is the size that makes them not too small?
All of the vessels that were available last year during the
SPR drawdown in the barge fleet exceeded the minimum lot size
in the DOE Notice of Sale, which was 40,000 barrels.
We also hear that what you just said, DOE does not think
that our vessels are capable of berthing at SPR terminals. That
is incorrect, but it also is irrelevant. It is not a factor in
the Jones Act.
Then we hear that the size of our vessels is not
consistent--and this is probably the part that is most
Orwellian to me--not consistent with the desires of the oil
purchasers, with their transportation plans, and with purchaser
preferences, as though these matters supersede the law. And
when we ask the administration to consider that these are
outside the ambit of the Jones Act, what we get back is a
legalistic interpretation that it is within MarAd's discretion
to consider factors like loading windows, berth schedules, and
cargo size in determining American vessel availability.
And the end result of all of that is what you saw last
year. There were more than 25 American-flag tank barges that
were capable of lifting SPR oil during that drawdown, and not a
single one of them got any work.
Mr. LoBiondo. Can you tell me what the difference was
between the vessels that were bypassed by Department of Energy
and MarAd during this 2011 drawdown and the vessels that
delivered oil to the Strategic Petroleum Reserve in the first
place?
Mr. Allegretti. Well, there are two principal differences.
As you all said, 99 percent of the oil was delivered on
foreign-flag vessels with foreign crews registered under the
laws of foreign nations. And so that would be one distinction.
The other major distinction is the size, and so it raises
this issue of the secret 500,000 barrel minimum, that the
public documents that are available to folks in our industry
say that if you have a tank barge in excess of 40,000 barrels,
you are eligible to lift this oil.
And so think about this, Mr. Chairman. I know that you and
other members of the committee try to look at the effect of
your laws on real men and women. So think about it from this
perspective for a second. You are an American-flag barge owner.
You are probably a family-owned company. You have probably been
in the business for three, four or five generations. You have
reinvested the profits of your company consistently back into
the business providing good jobs in your community and around
the country. You play by the rules. You have complied with all
of the new requirements of OPA-90, which means that over the
course of the last 20 years, you have invested hundreds of
millions of dollars in the recapitalization of your fleet.
And so you now have a fleet of vessels that are
technologically advanced, state-of-the-art, the very model of
efficiency for coastwise transportation, and you hear that the
administration is going to draw down the SPR, and you look at
the Notice of Sale, and it says 40,000 barrel minimum. You
think, ``Well, great. I have got plenty of vessels that are
more than 40,000 barrels that are available, and I would be
interested in that work.''
And then you wait for the phone call. You wait for the oil
company or the oil trader or the charterer to call you and ask
you about the availability of your vessel, but no phone call
comes in.
And then the next thing you hear is that the Maritime
Administration has made a declaration that there are no
American vessels available to lift this cargo, and you look out
your window and you have got vessels sitting idle at your dock.
So if you are an American vessel owner, you have to be
extraordinarily concerned about how this process went. I said
it was illegal. You know, it was also unfair, and I think what
it points us is that this process utilized by the Maritime
Administration to determine the availability of vessels really
was a sham.
Mr. LoBiondo. Well, I appreciate that, but let me maybe ask
this a little bit differently because I want to make sure I
understand this correctly.
Is it not true that the vessels that were bypassed are the
same type of vessels that made the original deliveries?
Mr. Allegretti. Absolutely, Mr. Chairman. I am sorry if I
misinterpreted your question. That is absolutely true. The
original filling of the Strategic Petroleum Reserve was done by
a company no longer in business by the name of Coastal Towing,
which had the contract for the original filling. Coastal
Towing's barges were all in the neighborhood of 20, 25, 30,000
barrels.
So we filled the Strategic Petroleum Reserve with smaller
barges, and it is also, in fact, true that as the reserve has
had to be replenished, we have use ATVs to do that. These are
the very vessels that were overlooked last summer during the
drawdown.
Mr. LoBiondo. OK. Thank you, Mr. Allegretti.
Mr. Larsen.
Mr. Larsen. Thank you, Mr. Chairman.
Thank you, Mr. Allegretti, for coming today.
You say that in the industry there are 25 or so available
vessels.
Mr. Allegretti. Last year.
Mr. Larsen. Yes, right. Sorry. Last year. Secretary Porcari
sort of went down a list by number and category of vessels that
were not available for whatever reason.
I did not do the math and add those up. I do not know that
they added up to 54. I do not know if you did the math. It is
possible it added up to 29, leaving the 25 available. Can you
give us your evaluation of the list that Mr. Porcari gave us,
the reasons why and the number of vessels not available?
Mr. Allegretti. I would be happy to. And I might pivot off
of something you said in your statement, Mr. Larsen.
Mr. Larsen. Sure.
Mr. Allegretti. About looking for practical reforms. This
is an area that would be rich in that regard. One of the things
that the Maritime Administration does, which it is not well
equipped to do is to evaluate the commercial market. So it asks
questions about when is your next dry docking. What kind of
cargo did you carry the last time? What are you going to carry
the next time?
These are questions the Government does not need to be
involved in. There is an unbelievably efficient system of cargo
transportation in the United States that works perfectly day in
and day out. The essence of what oil companies do for the
movement of their cargos is to work with vessel owners and
figure out how do I get this cargo from this place to this
place. What is the most efficient way to do that? What vessels
are available? How do I reposition vessels to make this work?
These decisions go on every single day. So to have the
Government try to micromanage the connection between a
particular cargo and a particular vessel is really absurd. We
could simplify this process and, I think, enhance the integrity
of the Jones Act by doing one simple thing. We can say the
Jones Act is the law of the land. You shall use American
vessels first until there are no American vessels.
So using the scenario of last year's drawdown, if the
Department of Energy had not given advanced warning to the oil
purchasers that it was going to give them automatic Jones Act
waivers, all they needed to do was ask, and had said instead,
``It is our expectation that you will follow the law and that
you will contract with American vessel companies to move your
cargo until there are none left,'' those guys would have
figured out how to get that cargo to market, believe me, and we
would not have had all of this kind of Maritime Administration
management of what the list actually says.
Mr. Larsen. Does MarAd and DOE have access to this database
for cargo transportation vessel availability?
Mr. Allegretti. Well, there are two answers to that
question. Last summer the list that Deputy Secretary Porcari
was referring to was actually a Maritime Administration list
that was on MarAd's Web site. It reached out to vessel owners,
said, ``What do you have available?'' and compiled that
information, and it updated it on a regular basis.
We found that that system did not provide sort of all of
the detail and clarity that they were looking for. So one of
the things that came out of our conversations this past spring
with Secretary Porcari and the folks at MarAd was for us to try
to help them put together a better list with more specificity
about vessel availability and timeframes of availability, which
we have done, and which we have shared with them.
And so that list shows that at this point in time we have
availability in the next 30 days more than 30 American-flag
vessels with a capacity of somewhere between 50 and 150,000
barrels each, with an aggregate capacity of about 2\1/2\
million barrels. That is where we stand today.
Mr. Larsen. So if there was an SPR drawdown today of 30
million on the same level they had last year, you could do 2\1/
2\ million of that 30, but that would max out the U.S. industry
today.
Mr. Allegretti. That is right. We could do 2\1/2\ million
of the initial drawdown, but I would also point out that those
vessels will become available again at some point in the
timeframe of the drawdown, and so part of what the reform has
to do is to be looking at an ongoing basis about vessel
availability.
Mr. Larsen. Right. Can you comment some on your views with
regards to this 500,000 barrel lot size?
And the question I had for Mr. Porcari had to do with
whether or not that creates an artificial barrier to
participation. Now, that's a purchasing lot size, but in your
experience in the industry, does it not seem obvious there
might be some connection between those who are purchasing and
those who are delivering?
You buy 500,000; you want to deliver the 500,000.
Mr. Allegretti. Oh, exactly. And that is the problem, that
you know, I thought that the answers on that question were
incomplete. It is true that the 500,000 refers partly to the
purchase of the oil, and if it had gone from there to you may
purchase in 500,000 barrel lots, but you must deliver
consistent with the requirements of the law, that would have
been fine and we would all be here today celebrating that
action rather than protesting it.
But that is not what happened. It was if you buy in
500,000, we will give you a waiver to transport it at 500. And
I am sure the committee has this information available to it.
If not, we would be happy to share it through our Freedom of
Information Act request of the agencies. There are many
documents that we have received and reviewed that make clear
that although they never rescinded the 40,000 and 300,000
barrel minimums in their notice of sale, as a de facto matter
they changed that to make it 500,000. And that is why there
were 44 waivers of the Jones Act, because there was a de facto
500,000 barrel minimum, and there are no American vessels
available to do that.
Mr. Larsen. Right. Back to the issue of potential reforms
to the waiver process, do you have other contributions to that,
to reform ideas?
Mr. Allegretti. Well, you know, the simplest is simply if
we could all start at the same premise, and I think that is
part of the problem that we have. Secretary Porcari talked
about active partnership with industry, and we certainly
welcome that, but a partnership has to be based on kind of a
mutual understanding and mutual basis of similar philosophy,
and we do not have that here.
We have the industry saying follow the law, and we have the
administration saying there are a bunch of impediments that get
in the way of following the law. And I thought one of the
things that was most troubling about Secretary Porcari's
testimony was he talked about looking for a process to bring us
in, to bring the American-flag vessel industry in.
We are already in. The law requires us to be in, and yet
they see us on the outside and they see reforms that give us a
greater opportunity, as he put it, to participate. We have the
first opportunity to participate under the law, not the last.
So I would say if we could have a fundamental understanding
about the premise from where we depart, that would be
wonderful.
Mr. Larsen. Thank you.
Mr. Chairman, thank you.
Mr. LoBiondo. Mr. Harris.
Dr. Harris. Thank you very much.
Let me ask. Obviously other shipments occur of oil between
two American ports in everyday commerce in the United States.
What percent of those shipments right now are delivered on
Jones Act vessels?
Mr. Allegretti. All of them. Between U.S. ports?
Dr. Harris. Yes. So in everybody business conducted.
To put it in perspective, what we are expected to believe
is that although on everyday business 100 percent of shipments
can be delivered on a Jones Act vessel, when normal commerce is
conducted in the sale and purchase of oil, when the U.S.
decides to sell part of its stock of oil, we can only do one-
half of 1 percent? Am I missing something here?
I mean, all of a sudden when the U.S. Government is the
seller of the oil instead of some other producer, we can only
ship \1/200\ of it complying with Jones Act?
Again, I am astounded.
Mr. Allegretti. You are not missing anything, sir.
Dr. Harris. OK.
Mr. Allegretti. It goes to the issue of difference in the
fundamental premise from which we depart.
Dr. Harris. Right. Because I assume that when a normal
conventional trade of oil is made, the DOE and MarAd is not on
the phone between the prospective purchaser and the seller
saying, ``You know, do not worry about that Jones Act because
if you just contract for 500,000 barrels with an American
producer, do not worry. We will allow you to.''
I assume that is not the way business is normally
conducted.
Mr. Allegretti. No, sir. No, sir. And actually one thing
that is relevant to your question is that this industry, the
coastwise transportation of petroleum industry has undergone a
fundamental transformation in the last 25 years. Part of that
was driven by the requirements of OPA-90, which required double
hauls, and so that spurred the reconstruction of all vessels
going forward that want to participate in that trade.
But the other thing that has changed fundamentally that is
different than it was prior to OPA-90 is the partnership that
exists between the oil companies and the vessel owners who
transport their cargo where there is a fundamental partnership
about how do we do this, what kinds of vessels do we want; are
we both committed to flawless operations and no spills? And
that is a very strong partnership, and so the state-of-the-art
industry that exists today is part of that.
And so you cannot have that partnership without them having
a close commercial working relationship.
Dr. Harris. So what you are suggesting is that the oil
companies actually have a better relationship with the
transport companies than the U.S. Government does, functional
relationship.
Mr. Allegretti. That is undoubtedly true.
Dr. Harris. I also do not understand, and I guess I could
have asked the Secretary although it is probably higher
administration policy. What was the emergency about getting
this oil shipped without complying with Jones Act?
I mean once the decision is made that you are going to
release the oil, its effect on the market is there. I mean, the
market assume 30 million barrels of extra production are there.
If it is released today, tonight, tomorrow, next week, next
month, the market knows it is there.
Is there an emergency that you can tell that meant we could
not wait? Because as you suggest, some of these vessels could
have been just recycled through the process. I mean, until we
are literally on an everyday basis we ship 100 percent of that
American produced oil. What was the emergency? Was there a
perceived emergency?
Mr. Allegretti. Well, there was an articulated emergency by
the Department of Energy which laid out initially the goal of
all of these cargos being into the economy within 30 days of
the announcement of the drawdown at the beginning of July.
Dr. Harris. And what was the purpose of that that you could
tell?
I mean, I am sorry. I have to ask you because the
Department of Energy is not here to ask the question. But I
mean, did some economist suggest that, you know, at 35 days it
does not work? The effect is gone. At 40 days the effect is
gone? Is this voodoo economics, oil economics out of the
department?
Mr. Allegretti. I mean, I do not know. I cannot tell you. I
cannot speak for them, thankfully, and I cannot tell you what
their basis of 30 days was, but here is what I can tell you,
that it was a false goal on their part, and they knew that they
were not going to achieve it, and I think they used it as a
mechanism to exclude American vessels from the process.
Factually, although they had a 30-day goal, there were
still cargos moving to terminal locations 90 days later.
Dr. Harris. On foreign vessels.
Mr. Allegretti. On foreign vessels. So they did not deliver
the cargo for 90 days. So one has to conclude that somewhere in
that 90-day process there had to be room for American vessels
to participate.
And I will add this. The Department of Energy has provided
not once scintilla of evidence to show what it suggests, that
by the use of smaller American vessels we would have had a
materially damaging effect on the President's policy. There is
no evidence to suggest that.
Dr. Harris. Well, thank you very much.
And thank you, again, Mr. Chairman.
Mr. LoBiondo. Mr. Landry.
Mr. Landry. Mr. Chairman, thank you.
My friend Mr. Harris has it right on the point. You know,
at my house my wife and I set down some rules for my 7-year-
old, and when he does not want to follow them, he can give me
every excuse in the world why he should not have to follow that
rule. That kind of sounds like where we are at in this issue.
You know, it is like it is a missed opportunity by this
agency. So if you break it down in simplistic terms, like Mr.
Harris said, there was no immediate rush. These refineries were
not running out of oil. Is that not correct?
Mr. Allegretti. That is correct.
Mr. Landry. So the immediate indication by the
administration to the markets that it was going to make
available 30 million barrels of oil was in their mind supposed
to have an effect on the market to lower the price at the pump.
That was the excuse, right?
But then those refineries are not short of oil. They
basically just stopped some foreign oil from coming into the
refinery at that time, said, ``Wait a minute. We do not need
that shipment right now. Those tankers can sit off in the Gulf
of Mexico, anchor down, and wait till we get this 30 million
barrels.''
Of course, what we know is that it is voodoo economics, Mr.
Harris. I mean, the whole thing was a scam, all right, to try
to tell the American people that this administration was going
something to lower the price at the pump, when it is real easy
to do. You have just got to the bit in the ground down in the
Gulf of Mexico.
And so we could have easily just said, ``Follow the law and
allow American workers to transport that oil over a 30-, 60-,
90-, 100-day period of time,'' than to try to shove all that
oil into those refineries at that particular time because once
they did that, those refineries simply picked up the phone and
said, ``Hey, Saudi Arabia. Send your oil back now because we
have got all of the American oil we need, and now you can bring
your tankers in.''
Am I missing something?
Mr. Allegretti. No, I do not think so, Mr. Landry. I think
that you have described it perfectly.
Mr. Landry. So really the agency just missed an opportunity
to put Americans to work. So what we hear out of this
administration and out of these agencies is how American jobs
are so important to them and how their main goal is to create
American jobs. And when they had an opportunity to create or
preserve American jobs, they said no. Is that a correct
statement?
Mr. Allegretti. That certainly was the effect of the
actions taken by the agencies last summer.
Mr. Landry. And so to simply solve this problem, it just
needs to be said that if we are going to release the oil out of
the Strategic Petroleum Reserve, barring an emergency
tantamount to refineries actually running out of crude, that
there is really no excuse not to use American-flag vessels.
Mr. Allegretti. In our view, sir, none whatsoever.
Mr. LoBiondo. Mr. Cummings.
Mr. Cummings. Thank you very much.
Mr. Allegretti, you wrote in your testimony, and I quote,
``To this day DOE, DOT and DHS have not provided a satisfactory
explanation for the American vessel unavailability
determinations that amounted to a de facto blanket waiver of
the Jones Act.''
You also wrote that you have been unable to meet with the
Department of Energy to discuss this issue. At the time of the
2011 SPR drawdown, what steps did you and the Jones Act
industry take to make MarAd and other agencies aware of the
availability of Jones act qualified vessels to move oil
released from the SPR?
And what response did you receive from MarAd and other
agencies?
Mr. Allegretti. Well, the process that MarAd had in place
that time was to reach out directly to the owners of the
vessels and to inquire of them what vessels do you have
available and what timeframes, and so they were compiling the
list that appeared on the MarAd Web site at that time.
And we found that the list was often inaccurate, and it
also suffered from these sort of governmental decisions about
that vessel really is not available because it is scheduled to
go into the dry dock next month.
So we reached out to MarAd and we suggested a different
process where we would be able to provide them with more real
time information, which we have done, and we would be happy to
share that with the committee, the report that we have
submitted to MarAd. We have given them now the second version
of it, which we updated from the first.
Mr. Cummings. Now, when you presented that information, did
you get any response? I mean, did they say, ``Yeah, we got it.
Thank you very much'' or, ``we are going to use this''? Did
they say, ``To hell with you''?
I mean, what did they do? What happened?
Mr. Allegretti. Well, we did get a response the first time
we submitted it and, you know, a polite thank you. We will take
a look at it, and then we submitted an update a couple of
months later, and I do not think we have actually received a
response to that second submission.
Mr. Cummings. And what kind of details, I mean, did you
provide them with? I mean, when you say you gave them up to
date, what does that mean?
Mr. Allegretti. Well, we have reached out to our members,
the members of American Maritime Partnership and AWO and asked
them to tell us what vessels do they have available, and we
asked them to do that in three basic tranches. One is vessels
immediately available today to move SPR oil.
The second tranche is vessels that will become available in
the next 30 days, and then the third is vessels that might be
reasonably available in the next 90 days, and then beyond that
if it becomes very speculative.
So we do list all other American vessels, but without a
designation of their availability because we don't have that
information.
So what this shows them, just to give you the snapshot of
what this says, is that there are currently 31 vessels
available on the spot market today or will be available in the
next 30 days, and they have a collective capacity of about 2\1/
2\ million barrels of tankage.
Mr. Cummings. So subsequent to the drawdown, can you
identify the agencies with whom you have met to discuss this
issue, and what responses have you received from them?
Mr. Allegretti. Well, we have met with, of course, MarAd
and DOT, and I would say, you know, those are largely positive
exchanges, although we have not gotten to the place where we
have a shared premise about what the law says. I would put it
that way.
We have been very disappointed in our outreach to the
Department of Energy. We actually had a situation where we were
trying to set up a meeting. We think the Energy Department
would benefit by a little bit of education about marine
transportation. They were resistant to setting it up.
We reached out to a U.S. Senator and asked her to help us
get the meeting set up, and she did that for us. So we had a
meeting set on a day in March, and we brought in four
executives of tank barge companies from around the country.
They all flew in that day. We took them over to the Department
of Energy. We went through the security process, went up to the
conference room to an empty table to be told that the
Department of Energy decided not to meet with us.
Mr. Cummings. Did they say why?
Mr. Allegretti. No. And we called them subsequently to ask
what happened. Can we talk? And none of our phone calls were
returned.
Mr. Cummings. Whom have you attempted to meeting with? I
mean, who were you trying to meet with? Who did you think you
wanted to meet with?
Mr. Allegretti. I had better check the record so as not to
misstate that. We did have the names of a couple of folks who
we thought were scheduled to meet with us.
Mr. Cummings. I mean, did you have some written
confirmation? I mean, you did not just show up. You did not
just barge in?
Mr. Allegretti. No, we do not barge in, sir.
[Laughter.]
Mr. Cummings. No pun intended.
Mr. Allegretti. No pun intended. No, we had written
confirmation that the meeting was set for, as I recall, 11:00
a.m. on this particular date, and we met with our folks earlier
that morning, and we did a little bit of huddling to get ready
for the meeting, and we went over there and they did not show
up.
Mr. Cummings. I see my time has expired. Thank you, Mr.
Chairman.
Dr. Harris. [presiding.] I recognize Ms. Hirono.
Ms. Hirono. Thank you very much.
And I do apologize for being late for the hearing. I think
that we share the concerns about the blanket waiver of the
Jones Act whenever the reserves are tapped. I have that concern
also, but going forward, part of the issue apparently is the
capacity of the Jones Act ships to be able to transport the oil
that is release.
Is there anything that we can do in the future to expand
the capacity of our Jones Act ships? Do we need to, you know,
do a lot more to support shipbuilding, for Jones Act ships
being built in our country? What are some of your thoughts so
that we can avoid this kind of or minimize a blanket waiver of
the Jones Act every time we release oil from the reserves?
Mr. Allegretti. Thank you, ma'am.
I would like to narrow my answer to just the vessels that
are engaged in the coastwise transportation of petroleum
because that is sort of the subject of the hearing today.
I would say that the size of the fleet, of the American
fleet is sized to the requirements of the customer base. So you
do not find ordinarily lots of excess capacity in the fleet.
You would not expect that if people would build very expensive
capital assets for which there is no work.
So the system of commercial transportation actually works
pretty well in managing supply and demand, and I do not think
that there is a need for Government incentive to expand the
size of that fleet because I think the fleet is sized in the
requirements of the customer base.
Ms. Hirono. So does that mean that every time that there is
a release from our reserves that we are going to see a blanket
waiver and we just have to live with it? The Jones Act ships or
you all have to live with it?
Mr. Allegretti. Oh, no, not at all. No, not at all because,
you know, the system is not perfect. So to the extent that
where we stand today is 31 available vessels of aggregate
capacity of 2\1/2\ million barrels, there is an excess in the
market at least insofar as the customer requirements exist
today. So they are available to move SPR oil.
And so if we would use those first to the full extent of
their availability and then seek Jones Act waivers, that would
seem to be making the best use of American assets with the
surge capacity of foreign assets when we run out of
availability.
Ms. Hirono. That makes a lot of sense. So why are we not
going that route?
Mr. Allegretti. I am not sure I know the answer to that. It
has really been a subject of some curiosity to us. I guess that
is as kind a way as I can put it.
The commentary we heard today from the department, I think,
actually suggests a grim picture for the future. We have had a
year of controversy about this issue. Congress has been
fantastic in the clarity of its expression about the importance
and integrity of the Jones Act, and yet if you read Secretary
Porcari's statement, what you will see is essentially a
justification of past action, past action which resulted in
more than 99 percent of the oil moving on foreign bottoms.
And when you look to the forward program of what will we do
in the future different, I think it is very grim. I think what
that testimony says is that the Jones Act fleet is hampered by
impediments that make it difficult for us to use it for the
transportation of SPR oil. I see no evidence of a change in
mentality. I see no evidence to suggest that if there is
another drawdown of the SPR after July 1, after the Iranian
situation develops internationally, that we will not find
ourselves in the same exact situation of 99 percent of the oil
moving on foreign bottoms because the Department of Energy will
have established minimum lot sizes that the oil purchasers will
take full advantage of.
So I think looking forward, I wish I could say that I
thought that we had the basis for a better understanding, but I
do not see it in the written testimony.
Ms. Hirono. And the minimum lot size, that is an
administrative decision. It is not based on any requirement of
any law or any regulation that is in place?
Mr. Allegretti. That is exactly right, and it is
inconsistent with the published notice of sale that the
Department of Energy published for the public. So what you have
is a public document that says one thing, and you have an
unwritten criteria that says something different, which is, in
fact, the de facto criteria that drove all of the decisions
about transportation.
Ms. Hirono. Thank you.
I think there must be something we can do, Mr. Chairman,
because we seem to all be on the same the page as to the
results that we are looking for.
Thank you.
Dr. Harris. Thank you very much.
Let me just make a brief comment. Going forward, could you
fill us in on what the industry looks like? You know, we are
having an American renaissance of energy in the country where I
suspect that we are going to have more, not fewer shipments of
energy between American ports. What is the industry doing? Are
more ships being built? Is production increasing? Is it stable?
Could you just give us an idea where it is going?
Mr. Allegretti. I can give you an anecdotal idea. I would
not say that it is a scientifically valid idea.
What I hear from the folks that I talk to is that they are
bullish on the future of marine transportation for petroleum
and energy products in the United States because of developing
technologies, because of new opportunities on the North Slope
of Alaska, and that they are staying very close to their
customer base.
That is what drives decisions for construction of vessels,
is understanding customer requirements and the customer's
expectation of transportation needs over the long term. So I
would say a short answer is I think they feel bullish about the
future of that part of the business.
Dr. Harris. And is our capacity increasing in our ability
to ship on American-flag vessels?
Mr. Allegretti. In the petroleum area?
Dr. Harris. Yes.
Mr. Allegretti. Yes. Domestically yes.
Dr. Harris. Thank you.
Mr. Larsen.
Mr. Larsen. Thank you, Mr. Chairman.
Just a final comment from me. First off, you have given us
a lot of food for thought on waiver process reforms. I think
that is an important direction for us to look. So I appreciate
your testimony.
Second is if the available capacity of the U.S. fleet is
something less than 30 million, I hope we can focus on 100
percent of that capacity being available and being used for
whatever number short of 30 that is being used.
Finally, I have great respect for my friend from Louisiana.
Unfortunately he is not here, but the effort in Libya last
year, there is a lot of debate about it. We are here debating
about the implementation of the Jones Act as it applies to the
SPR and not so much about the international effort in Libya or
the related international effort to release oil from national
Strategic Petroleum Reserves, not just in the U.S. but in other
countries in order to alleviate price spikes that resulted
from, first off, the potential action and then the actual
action in Libya.
I personally do not characterize the release in SPR as a
scam in any way, shape or form by this administration, nor did
I characterize it as a scam under the second Bush
administration. That is not my view, and I want to be clear
about that.
I do have problems with how it was implemented and the
purpose of this hearing and the reason I called for or asked
the Chairman for this hearing was to consider how we can
improve the implementation of any SPR drawdown so that we are
better utilizing the availability of a qualified and capable
and available U.S. fleet. That is what our goal should be.
Mr. Allegretti. Mr. Larsen, might I just say I hope you
heard my answer to Mr. Landry as speaking to the issue of Jones
Act and not to the larger foreign policy question.
Dr. Harris. Ms. Hirono, do you have a closing? Ms. Hirono,
do you have a statement?
No. No further comments?
[No response.]
Dr. Harris. Well, if there are no further questions, I
thank Mr. Allegretti again for his testimony and the Members
for their participation.
The subcommittee stands adjourned.
[Whereupon, at 11:50 a.m., the subcommittee was adjourned.]