Energy Musings - April 7, 2025
Crowley's American Energy LNG carrier will bring Gulf Coast natural gas to Puerto Rico. Using a 31-year-old ship and a special Jones Act provision may crystalize debate over revising the law.
Crowley’s New LNG Carrier May Start Jones Act Reset
In late March, shipping company Crowley announced it had raised the U.S. flag on its new liquefied natural gas (LNG) carrier, American Energy. It will carry Gulf Coast LNG to Puerto Rico under a long-term contract with Spain-based Naturgy Energy Group S.A., which operates a receiving terminal in Penuelas, Puerto Rico. The gas is targeted for use in Naturgy’s combined-cycle power plant that supplies 20% of the island’s electricity. Additionally, the gas will supply a neighboring power plant. These are crucial power plants for Puerto Rico’s struggling electricity grid.
“The entry into service of American Energy marks a significant step for fuel supply reliability in Puerto Rico for our energy grid, which will greatly benefit our people,” said Puerto Rico Governor Jenniffer González-Colón. American Energy initiates a new business venture for Crowley, a privately held, U.S.-owned and operated logistics, marine, and energy solutions company that serves commercial and government customers. Crowley has a long history and a wide spread of operations. It was founded in 1892 when Thomas Crowley purchased an 18-foot rowboat and began providing transportation services for people and supplies to ships anchored in San Francisco Bay.
American Energy was formerly known as the Intan (formerly the Puteri Intan, built in 1994) and was previously registered in Liberia. The 31-year-old, French-built steam turbine LNG carrier was purchased by Crowley in December, refurbished, surveyed, and reflagged to the U.S. Due to its age, American Energy is taking advantage of a provision of the Jones Act, which was modified as part of the Coast Guard Authorization Act of 1996. The provision allowed foreign LNG ships built before 1996 but owned and crewed by Americans to deliver Gulf Coast gas to Puerto Rico. None utilized the provision until now.
American Energy prepares for its first LNG cargo.
The 900-foot (274-meter) American Energy has a capacity of 130,400 cubic meters (34.4 million gallons) and can provide enough LNG with each voyage to serve 80,000 Puerto Rican homes with power for a year. The island’s population has suffered from electricity grid issues since Hurricane Maria ravaged the system in 2017, followed by Hurricane Fiona in 2022. After Maria struck, President Donald Trump was convinced to waive compliance with the Jones Act for a short time to enable the delivery of U.S. supplies to the devasted island. There was a push to extend the waiver to ten years, but Trump’s advisors recommended against it.
At 31 years old, the vessel is one of only 13 actively trading LNG tankers globally that are 30 years old or older. Even significantly younger LNG tankers are being sold for scrap due to their lack of competitiveness. Below is the record and the language of the provision allowing American Energy to supply Puerto Rico.
Jones Act provision and younger scrapped LNG carriers.
Unfortunately, the Jones Act provision does not apply to New England. This region suffers from a lack of domestic natural gas every winter, making it difficult to heat homes and generate electricity. Utilities are forced to rely on imported LNG coming to a terminal in Massachusetts. When Russian LNG arrived, alarm bells were triggered, and the debate over modifying the Jones Act to allow domestic LNG to be shipped to New England began.
The U.S. has a long history with LNG, dating back to 1940 when East Ohio Gas built a full-scale commercial plant in Cleveland, Ohio. Unfortunately, the plant failed in 1944. The leak spilled thousands of gallons of LNG, which exploded, setting off fires that killed 130 people and destroyed a one-square-mile area on the east side of Cleveland. The following 15 years were spent researching to help get the industry back on track.
In 1959, a former World War II Liberty ship was converted to transport LNG. Named the Methane Pioneer, it carried the first U.S. LNG cargo from Lake Charles, Louisiana, to a receiving terminal on Canvey Island in the United Kingdom. After proving the viability of LNG shipping, the first carrier explicitly designed for LNG, the Methane Princess, was built.
The first U.S. commercial LNG export operation commenced in 1969. Gas from an LNG plant constructed by Phillips Petroleum on the Kenai Peninsula of Alaska was shipped to Japan. This was the only way the company’s gas discovery could be commercialized. The first LNG shipment arrived in Tokyo on November 6, 1969.
LNG demand skyrocketed in the U.S. when domestic gas supplies began to decline, and the nation aggressively reduced its dependence on crude oil during the 1970s energy crisis. LNG was imported from Algeria. That trade, buoyed by the expectation of a sustained LNG trade, spurred the construction of 16 LNG carriers in the U.S. Once the gas shale revolution kicked off in the early 2000s, domestic production soared, eliminating the need to import LNG. Supplies became so plentiful that producers sought to sell gas internationally. In 2016, the first LNG was shipped from the Lower 48. Today, the U.S. has become the world’s largest LNG exporter.
The 16 LNG carriers were built between 1977 and 1980. Three shipyards – General Dynamics Quincy (10), Newport News (3), and Avondale (3) – built the ships. All the ships built were part of larger fleet orders, but when market conditions changed, the remaining ships in the orders were canceled. The owner accepted none of the Avondale vessels. One was wrecked and eventually scrapped eight years later, while the remaining carriers were converted to Ore-Bulk-Oil (OBO) ships.
Eleven of the 16 LNG carriers were built under the Contract Differential Subsidy (CDS) program, while the other five were not. The CDS program was begun after World War II ended and was designed to help sustain the domestic shipbuilding industry and enable the commercial shipping industry to build U.S.-flag vessels for use in international trade. President Ronald Reagan ended the CDS program in the early 1980s. During the CDS program’s life, roughly 250 U.S.-flag ships were built. Immediately following the program’s end, none were built.
Crowley’s move will likely trigger a new debate over the Jones Act. Puerto Rico has traditionally relied on LNG from Trinidad and Tobago, with additional shipments coming from Nigeria and other sources. Now, it can receive domestic LNG, which costs a fraction of the imported gas. That will have a positive impact on residents’ budgets.
High winter electricity bills in New England have become a concern for the region’s consumers. They are demanding relief. Finding some way to obtain cheaper Gulf Coast gas is becoming a priority. Increased domestic gas supplies would displace expensive LNG imports and reduce reliance on oil and coal to offset the natural gas shortage for generating electricity.
Whether congressional representatives from New England can secure a modification of the Jones Act to allow domestic LNG to be shipped there is questionable. That is because the issue of the sorry state of the U.S. shipping, shipbuilding, and mariner industries has become part of the White House’s agenda. A complete reset of these industries will likely also involve a review and modification to the Jones Act. In the meantime, a push is underway in New England to revive prior natural gas pipeline expansion and new construction proposals as a way to address high winter gas prices.
BANANA – Build Absolutely Nothing Anywhere Near Anyone – as a rallying cry against expanding the gas pipeline network serving New England has ruled the marketplace for many years. That may be changing. High electricity costs have gotten the public’s attention. They are demanding action. While NIMBY – Not In My Back Yard – displaced BANANA, YIMBY – Yes, In My Back Yard – may become the new mantra.
Crowley’s effort to create a business opportunity has highlighted the challenge the U.S. shipping and shipbuilding industries face. We are no longer competitive in the global shipping market. Crowley is using a 31-year-old vessel and a Jones Act loophole to meet market demand and help the citizens of Puerto Rico. There are also other U.S. citizens seeking financial assistance with high electricity bills. There are many reasons why the 1920 Jones Act needs to be revisited. It probably does not need to be scrapped, just revised for the world 100 years later. While a rowboat sets one company on the road to success, American Energy may become the catalyst that does the same for the domestic shipping industry.