Bahamas in Picture For Gas Supply Workaround

Global transportation of oil and gas requires secure, environmentally friendly oil storage facilities. The sheer number of petroleum storage terminals located in the Bahamas means the country is a significant player in the sector. 

The construction and maintenance of the storage facilities themselves, day to day management of loading docks specially designed to cater for large vessels and the refinery operations all mean that the oil storage facility sector in the Bahamas accounts for significant direct and indirect local employment. Inevitably the level of economic activity generated by the storage sector has knock on effects for professional services companies like ourselves.  

ParrisWhittaker is a team of award-winning lawyers with offices in Freeport, Grand Bahamas as well as in Nassau, Turks and Caicos and overseas. We advise on all aspects of Bahamiam employment law.  We also provide comprehensive services to companies in the maritime and shipping sector, including corporate services and dispute resolution.  We’re available on 1-242-352-6110 and 1-242-352-6112 or you can always contact us online. 

The profile of the local storage industry rose in mid 2022 when soaring demand for fuel on America’s East Coast saw oil companies take advantage of the Bahamas crude oil storage facilities to legally circumvent the restrictions of The US Merchant Marine Act of 1920 (‘The Jones Act’) and ship fuel to The East Coast of the United States. 

WHAT IS THE JONES ACT?

The Jones Act dates back to the industrial slump that existed in the immediate aftermath of WW1. It attempted to boost the US maritime industry by stipulating that if goods were being shipped between U.S. ports they had to be moved on vessels that were built, owned, crewed and operated by United States citizens. This prevents foreign ships from transporting goods between US ports and to certain territories not on the US mainland, including Puerto Rico and Hawaii.

In practical terms the effect of the Jones Act restrictions – which is still relevant today – is to frequently hike the cost of transporting goods to the US by sea because there is a finite number of American owned and crewed ships available to deliver the cargo. 

GETTING AROUND THE JONES ACT

The Gulf of Mexico, including oil hotspots like offshore Texas is one of the largest oil producing areas of the US. Transportation costs to areas like the East Coast for example are affected by Jones Act restrictions. 

In a creative workaround of the restrictions on non US ships and crew oil traders are increasingly moving to transport unfinished fuel components to Bahamas oil storage terminals where they are treated and made into a finished product for onward transportation to the East Coast.

But why does shipping a finished product not fall foul of The Jones Act?

For the answer we have to go back to 2014 and a decision by US regulators in a case brought by Buckeye Partners, one of the largest independent liquid petroleum products pipeline and terminal operators in the United States.

The ruling stated that shippers may supply domestic destinations with finished gasoline using foreign-flagged ships if the product is blended at a foreign terminal.

Buckeye’s Bahamas Hub is the principal facility for oil storage in the Caribbean and the largest petroleum products terminal in the Western Hemisphere. It is the focal point for the workaround of The Jones Act mentioned above.

COMMENT

The huge fuel storage facilities on the Bahamas represent a significant global centre for the transfer of oil to the worlds fuel markets, The 2022 development we’ve discussed is partly in response to geopolitical events like the Russian/Ukraine war and the upheaval to global trade caused by the Covid19 pandemic. But it also demonstrates the way companies based in the Bahamas, their local professional advisors and the authorities here can work nimbly together and effectively create commercially viable and attractive solutions that generate revenue and employment. 

CONTACT US 

At Parris Whittaker our team of lawyers provides comprehensive ancillary legal services to those in the oil and gas sector, including advice on employment laws, commercial disputes and shipping law generally. Please feel free to reach out to us at ParrisWhittaker for an initial, no-obligation discussion.