November 3, 2012 / 12:30 AM / 5 years ago

UPDATE 6-US government tries to get fuel to storm-hit Northeast

* Foreign-flagged ships will be allowed to deliver fuel
    * Waiver lasts through Nov. 13, only 1 waiver request so far
    * US defense military to truck fuel to NY, NJ
    * Energy experts divided on level of relief from waiver

    By Timothy Gardner and Ayesha Rascoe
    WASHINGTON, Nov 2 (Reuters) - The U.S. government on Friday
sought to ease the fuel crunch paralyzing the storm-struck
Northeast saying the military would buy motor fuel and truck it
there and allow foreign tankers from the Gulf of Mexico to
deliver oil products.
    The Department of Homeland Security waived the Jones Act, a
law that normally prohibits foreign-flagged vessels from
shipping gasoline, diesel and other petroleum products, from the
Gulf of Mexico to Northeastern ports. The waiver, effective
immediately, requires shipments to leave the Gulf region by Nov.
13 and arrive in the Northeast within a week.
    With power still out at many ports and gasoline stations hit
by superstorm Sandy and as petroleum supplies were robust before
the storm, it was unclear how much fuel was needed immediately
and how quickly it could get to customers.  
    The Energy Department also announced that it was tapping the
Northeast Heating Reserve for the first time, releasing about
48,000 barrels of ultra-low sulfur diesel for the Defense
Department to distribute to local and federal responders in New
York and New Jersey.
    The fuel will be used to supply emergency equipment,
generators, buildings, trucks and other vehicles. 
    The Defense Department will begin drawing down as soon as
Saturday from the reserve, created in 2000, which holds about a
million barrels of diesel. It expects to give back the fuel
within 30 days.
    In another move to ease the shortages, the Obama
administration also directed the Defense Logistics Agency to
purchase up to 380,000 barrels of unleaded gasoline and 317,000
barrels of diesel for distribution to storm-stricken areas. This
purchase will be delivered by tanker trucks, the Federal
Emergency Management Agency said in a statement.
    Earlier in the week the administration also waived clean
gasoline rules throughout most of the eastern seaboard as it
struggled to take action after the deadly storm.      
    Homeland Security said it had received only one request from
a company, which it did not identify, to waive the Jones Act.
    The law, part of the 1920 Merchant Marine Act, was created
to support domestic jobs in the shipping industry. It requires
goods moved between U.S. ports to be carried by ships built
domestically and staffed by U.S. crews. 
    The American Maritime Partnership (AMP), a domestic maritime
industry group, said it was not aware of any cases where U.S.
vessels had not been available to transport fuel, but it
supported waivers in the aftermath of the massive storm. 
    "We will not oppose waivers that are necessary to facilitate
delivery of petroleum products into the regions affected by
Hurricane Sandy," AMP said in a letter to President Barack Obama
and heads of several government departments.
    Benchmark New York Harbor gasoline futures dropped 5
cents, or 2 percent, on news of the waivers, which could allow
shippers to divert cargoes en route to Europe or Latin America
to the depleted Northeast market. 
    Craig Fugate, the head of FEMA, told reporters several
government agencies were trying to figure out how many ships
were available. He said the Energy Department held a conference
call with major suppliers.
    "We're working ... on which ships can be potentially
diverted to New York," Fugate said.
    Shipping sources said the slow return of power to ports in
the New York Harbor had them considering delivering fuel to
nearby cities such as Boston.
    Energy experts said the waiver might not bring immediate
relief to fuel-strapped New York and New Jersey, where two
refineries were shut by Sandy. But, in the longer term, shipping
alternatives could help ensure steady supply throughout the
    "There appears to be no urgent need at the moment" for a
Jones Act waiver, said Bob McNally, head of Washington-based
consulting firm the Rapidan Group. He said shortages so far have
been at the retail level rather than the maritime import level.
    David Goldwyn, who headed international energy affairs at
the U.S. State Department until early 2011, said the waiver
could boost the ability to deliver fuel to the East Coast now
that tankers that were set to go to Europe or other destinations
can dock there without restriction. 
    "The travel from Gulf Coast to the East Coast is pretty
quick," said Goldwyn, who currently runs Goldwyn Global
Strategies, an energy research and strategy company.
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