Hurricane Sandy prompts Jones Act waiver

Hurricane Sandy's disruption of petroleum shipments and refining has led Secretary of Homeland Security Janet Napolitano to issue a temporary waiver allowing foreign oil tankers to enter ports in the northeastern United States.

The Jones Act, a federal law enacted as part of the Merchant Marine Act of 1920, limits who may carry on coastal shipping between domestic ports.  This so-called cabotage law generally requires that all goods transported by water between U.S. ports be carried in U.S.-flag ships, constructed in the United States, owned by U.S. citizens, and crewed by U.S. citizens and U.S. permanent residents.

Hurricane Sandy's impacts to northeastern energy infrastructure included disruption of oil and gasoline supplies in the area near New York City and New Jersey.  Between reduced supply and concentrated demand, gasoline is reported to be in shortage conditions.  Long lines are reported at gas stations, and demand at some stations has led them to run out of gasoline. 

In an attempt to alleviate the shortage, today Secretary of Homeland Security Janet Napolitano issued a temporary, blanket waiver of the Jones Act.  The waiver is designed to allow foreign-flagged oil tankers, that would otherwise be barred from the U.S. coastwise trade, to ship petroleum products from the Gulf of Mexico to Northeastern ports.  The waiver will remain operative through November 13th.

Oil, from crude to fuels and chemicals

Petroleum - what we often think of as oil - powers a large sector of the world economy.  Crude oil, a naturally-occurring mix of substances produced by ancient life and transformed by time and geological forces, lies trapped beneath soil, rock, and the sea floor.  When captured and refined, the crude oil can be transformed into gasoline and diesel, but also into a wide variety of other fuels and chemicals.

In the U.S., crude oil is typically quantified in a 42-gallon unit known as the barrel.  While this bears some historic tie to actual barrels of oil, crude oil today is seldom packed in actual 42-gallon barrels, more typically being shipped in large seagoing oil tankers or pipelines.

At a refinery, each of the components of the crude oil mix is separated.  Some are converted from heavy, low-valued chemicals into lighter, higher-valued products like gasoline.  Processes like cracking, coking, and alkylation allow the production of more exotic petroleum derivatives.

From 42 gallons of crude oils, refineries can produce about 45 gallons of refined petroleum products. Typically, these might include:

• 19 gallons of gasoline
• 10 gallons of diesel
• 4 gallons of jet fuel
• 2 gallons of liquefied petroleum gases (propane, butane, etc.)
• 1 gallon of other distillates (heating oil)
• 2 gallons of residual fuel oil
• 7 gallons of other products

Most of this increase in total product volume comes as different fractions of the petroleum mix are distilled and transformed; the U.S. Energy Information Administration has described the increased volume after refining as "similar to what happens to popcorn, which gets bigger after it's popped".

Because each source of crude oil contains a different mix of hydrocarbons and other chemicals, the refining process yields different mixes of products for each type of crude. The demand for these products drives oil producers' decisions about where to drill and produce oil.