Cato Says The Darndest Things About The Jones Act…

Art Linkletter’s refrain on the mindless yet comical comments made by kids kept reverberating with me after reading something a few days ago in my email inbox. The object of my amusement was the July Jones Act Gazette from Cato Institute stating that Colin Grabow’s June blog said the Jones Act adds more than $4 billion annually to the cost of gasoline.

Colin’s blog referred to a recent report by an analyst at JP Morgan saying the Jones Act added 10 cents per gallon to the cost of moving fuel from the US Gulf Coast to New York harbor. A modicum of research would have shown that overstates the actual cost by more than four times. Furthermore, that difference only applies to 7.3% of total fuel moved from. With these geometric errors on top of each other, Colin’s claim overstates the actual impact by 50 times. That’s a doozy even for him.

I’ve written articles about Colin’s misleading numbers and hyperbole, noting how often they tend to circle in at being 5 to 10 times removed from the facts. Interestingly, that inaccuracy range has in this case has morphed into the factors that get his 50-bagger exaggeration. Those articles are accessible at the end of this article, but the focus of this article is just on this record whopper. We’ll unpack how the inaccuracies multiplied and point out the readily available facts that Colin chose to ignore in inventing his latest slander against the Jones Act.

Colin appeared on the Energy News Beat podcast on June 19 that I later became aware of from a LinkedIn post by podcast host Stuart Turley. In that post, he referenced the JP Morgan report while disagreeing and indicating the cost must be more than 10 cents per gallon. I imagine Stuart grew up with the notion, like many in the energy business in Texas, that there is nothing more evil than the Jones Act and no limit to the additional costs that could be laid at its feet. For someone like that, just a 10 cents per gallon or 2% impact on the price of gas New Yorkers like me pay probably didn’t seem right. Particularly since on the podcast Colin repeatedly said the cost to build a ship in the US was five times higher, subtly implying freight costs had the same differential in one of his favorite deft moves. Moving gasoline thousands of miles from the Gulf Coast to New York should certainly add more than 10 cents per gallon, Stuart must have thought from listening to Colin.

I commented right away on Stuart’s post that I agreed with questioning a JP Morgan that I saw as inaccurate. In my case, however, I knew it was way too high. In an article he wrote referencing the JP Morgan report, Stuart said it costs $4.66 per barrel to move fuel from the Gulf Coast to New York on a Jones Act tanker, while the foreign flag tanker cost would be $1.00 lower at $3.66 per barrel. As I said in my comments, using those figures and applying them to the 46,000 deadweight ton standard product tanker that carries 331,200 barrels, the total shipping cost for both can be calculated. If you go through the math, the cost difference is just 2.38 cents per gallon. Those total costs can be compared to the 14-day roundtrip voyage time for that route, resulting in amounts per day consistent with known measures supporting that number. Furthermore, the daily time charter equivalent difference of $23,667 between a Jones Act tanker and a foreign flag tanker works out nearly identical to what my experience said is the gap in crewing and capital cost of existing tankers. Finally, that the calculations using the benchmark that was the basis for JP Morgan claim came in at 2.38 cents was hardly surprising to me. In May 2021, I wrote an article on an actual booking of a foreign flag tanker under a Jones Act waiver where the time charter equivalent difference was $20,000 per day. In that clear apples to apples case, going through all the calculations results in the Jones Act adding only 2.01 cents per gallon for fuel moved from the Gulf Coast to New York. The complete article can be accessed using the link below.

https://medium.com/@john-d-mccown/jones-act-critics-hyperbole-exposed-7433ba3d6f84

In a series of comments on Stuart’s LinkedIn post, I showed in longhand how using the benchmark he referenced that the Jones Act added no more than 2.38 cents per gallon. You can also get to that number in shorthand by dividing the referenced $1.00 per barrel difference by 42 gallons, but I chose to layout all the numbers and how they tic and tie with other metrics. I don’t have access to the full JP Morgan analyst report, but its 10 cents per gallon claim is in error. With the facts I laid out, I think Stuart has gone from seeing that as geometrically understating the Jones Act impact to seeing it as geometrically overstating the Jones Act impact. While by virtue of Colin’s liking Stuart’s LinkedIn post he would be notified and have seem all of my edifying comments, I expected no such epiphany. Facts have no role in Colin’s Jones Act crusade. He knows that the Jones Act doesn’t add 10 cents per gallon to move fuel from the Gulf Coast to New York. But when you have a source like JP Morgan saying so, he couldn’t resist using that. Little did I know then that Colin would use that referent power to develop a talking point that went well beyond the venial hyperbole of exaggerating the Jones Act impact by five times.

The knee-slapper that arrived in the form of the July Jones Act Gazette had Colin taking JP Morgan’s 10 cents per gallon and applying it to every gallon of gasoline consumed on the East Coast. In a slight of hand worthy of a Three-Card Monte hustler, Colin falsely claimed that all 43 billion gallons he said were consumed on the East Coast move by Jones Act tanker from the Gulf Coast. What was a five times fabrication became a more than fifty times fabrication, and all with the supposed imprimatur of JP Morgan. If Colin hadn’t understated actual consumption on the East Coast in 2021 by 14%, his claim would have been off by 57 times.

The Energy Information Agency (EIA) issues copious factual data on energy related statistics. The most relevant one here is the movement of petroleum between PADD’s, or Petroleum Administration for Defense Districts. These districts were originally defined during World War II for administering the allocation of petroleum. There are five PADD’s in the US. The two key ones for this analysis are PADD I covering the East Coast and 16 states and PADD III covering the Gulf Coast and six states, including important producing areas in Texas and Louisiana. The movements from PADD III to PADD I covers a key lane for Jones Act tankers and barges.

According to EIA data, in 2021 the total movement of petroleum from PADD III to PADD I was 1,161,058,000 barrels, equivalent to 48.8 billion gallons. The EIA data shows that 99% of what was moved was refined product, with almost all of that movement made up by gasoline. The EIA data also shows that 75.3% of the movements between PADD III and PADD I moved by pipeline and had nothing to do with any vessel. Pipeline is far and away the most cost efficient transport mode for moving petroleum products. The Colonial pipeline moves some four-fifths of what moves from the Gulf Coast to the East Coast by pipeline, with the Plantation pipeline moving the balance. A search of Cato Institute’s website using the term “Colonial Pipeline” shows four articles by Colin which included the term, with the most recent such article dated March 9, 2022.

Gee, Colin, you know all about the Colonial pipeline and it is hard not to know that it moves the majority of gasoline from the Gulf Coast to the East Coast. Are you really saying that the 10 cents per gallon figure that you already know is bogus should also be applied to pipeline movements that have nothing to do with the Jones Act? Or knowing that is an indefensible position, was your fallback if questioned that you assumed that JP Morgan came up with a total figure that was equated to all consumption? Or did you just ignore the facts and hope that nobody would notice your sleight of hand? However it occurred, it is a stunningly egregious error from someone who purports to be a serious researcher.

Moving on to the balance of the 24.7% moving by water from PADD III to PADD I, you also know and have written about the significant vessel moves to Florida as it has no pipelines. Those voyages to Florida are one-third the distance of a voyage to New York and barges are the predominant vessels utilized. Obviously those cost economics and the gap compared to a foreign flag vessel are different from the Gulf Coast to New York voyage that was the focus of the JP Morgan report. According to a detailed EIA report on Florida accessible on its website, total movements from PADD III to Florida were 202,091,010 barrels in 2013. While it has presumably increased since, for precision that figure will be utilized. As it represents 17.4% of total movements and more than two-thirds of the vessel movements, the remaining 84,774,990 barrels equal to 7.3% of what went from PADD III to PADD I during 2021 is what actually moved on the Jones Act tankers.

Using the actual quantity moved on the Jones Act tankers from the Gulf Coast to the New York area and the actual differential compared to foreign flag tanker results in an actual 2021 incremental cost of $84.8 million. That is less than 2% of the claim Colin just made in Cato’s July Jones Act Gazette. To be in error in the conclusion of a written report by a factor of 50.4 times says much about the scholarship behind such an effort. The table below details all of the numbers in this situation. Information for the year 2021 is shown in total barrels, barrels per day and gallons per day to fit with various inputs and the specific source for each line is also shown.

At the bottom of the table is a section that recaps the annual amount moved in all cases and what that translates into in terms the equivalent number of tankers needed. It also then relates those tankers to the claimed annual cost to develop what the incremental daily time charter equivalent would need to be which is then compared to the actual daily time charter equivalent. While I imagine the folks I know in the Jones Act tanker business would be delighted if there was sufficient demand to keep 117.8 Jones Act tankers busy full time on the Gulf Coast to Northeast lane, there are only 9.8 tankers involved. For those tankers to generate the amount of annual added costs Colin just claimed, they would need charter rates in the $1.2 million per day range. Those don’t exist in the real world, but perhaps Colin sees them in his world of alternative facts.

To those that know the facts, Colin’s claim that a small number of Jones Act tankers cost American consumers an extra $4.3 billion per year is recognized as ridiculous nonsense. Unfortunately, to people who don’t know the facts including the hundreds if not thousands of folks in Washington DC that are likely on the distribution list of Cato Institute’s monthly Jones Act Gazette, it becomes one more fabrication that may leave an impression. This and other misrepresentations will be spread by other so-called think tanks, creating an echo chamber that magnifies the misinformation. While they present themselves as unbiased researchers to decision-makers and the media, in fact as it relates to the Jones Act their efforts are no more than lobbying on behalf of benefactors who have seriously funded their efforts. Their “research” involves cherry picking the work of others and spinning it into talking points that are endlessly repeated in an attempt to move their agenda forward. They ascribe to the view that a falsehood repeated often might take hold with some of the people that they are targeting.

Taking the JP Morgan report and using it as the basis for exaggerating the related Jones Act impact by over 50 times is a classic example of Colin’s artful spinning and marketing prowess. It’s a headline grabbing number and I suspect that every time he talks to someone about it he’ll mention the JP Morgan name. We know that most of his time is spent marketing his “research” not just from his thousands of tweets about the Jones Act, but because he talks about it on podcasts. On his recent podcast with Stuart, Colin said that congressional staff members are busy with many different topics, and most know nothing or little about the Jones Act. Colin said it is important to educate these congressional staff members. With his latest ridiculous claim of $4.3 billion, everyone should have a good idea on one specific example of how Colin’s plans to “educate” the next congressional staff member he talks with.