Proceedings Of The Marine

FALL 2015

Proceedings magazine is a communication tool for the Coast Guard's Marine Safety & Security Council. Each quarterly magazine focuses on a specific theme of interest to the marine industry.

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47 Fall 2015 Proceedings www.uscg.mil/proceedings coastwise trade. Understanding these emerging opportu- nities coupled with an appreciation for the evolving chal- lenges is necessary to implement a comprehensive strategy necessary to leverage a competitive advantage with the col- lective interests of American energy producers, consum- ers, and shippers at the forefront. One thing is certain — the market will remain unpredictable and possibly volatile. About the author: LCDR Corydon Heard is the Prevention Department head at Marine Safety Unit Texas City. Prior tours include the U.S. Coast Guard Offce of Com- mercial Vessel Compliance, Sector Baltimore, and Activities Europe. He is a graduate of the U.S. Merchant Marine Academy and has also earned an M.A. and a doctorate in business administration. He also holds an unlimited U.S. Merchant Marine Offcer endorsement. Endnotes: 1. U.S. Energy Information Administration, October 2014, "Country Analysis Note: Trinidad and Tobago." 2. U.S. Energy Information Administration, June 2014, "June marks 50th anniversary of the frst commercial liquefed natural gas tanker," www.eia.gov/todayinen- ergy/detail.cfm?id=16771. 3. http://alaska.conocophillips.com/what-we-do/natural-gas/lng/Pages/kenai-lng- exports.aspx; and www.adn.com/article/20120811/alaska-looks-hawaii-customer-natural-gas. 4. ADM Paul Zukunft, October 2014, "Domestic Energy Production," American Pilots Association, Houston, Texas. 5. Tabbutt, Mark. Statement to the House Committee's Coast Guard and Maritime Transportation Subcommittee. "The Status of the Merchant Marine," hearing, September 10, 2014. 6. Ibid. 7. American Maritime Congress, "Modern Merchant Marine." 8. U.S. Department of Transportation, Maritime Administration, September 2011, "Comparison of U.S. and Foreign-Flag Operating Costs." 9. Coastwise trade is generally defned as transporting merchandise or passengers between points in the U.S. or the exclusive economic zone, and is reserved for qualifed vessels with coastwise endorsements, whereas registry endorsements are generally maintained by vessels engaged in foreign trade under less stringent eligibility criteria. 10. Howard Coble Coast Guard and Maritime Transportation Act of 2014, Section 308. 11. O'Connell, J., "The other gas; While LNG gets all the headlines, it's LPG that's really making waves," The Maritime Executive, November 25, 2014. 12. "Liquefed gas shipping; Liquefed gas shipping export forecasts," June 2014, The Gas Gauge; Newsletter of the USCG Liquefed Gas Carrier National Center of Expertise, (2), 3-4. 13. U.S. Government Accountability Offce. (2013, March). Puerto Rico; Characteristics of the Island's Maritime Trade and Potential Effects of Modifying the Jones Act (Report Number: GAO-13-260). Retrieved from www.gao.gov/assets/660/653046.pdf. 14. Originating in 1996, Title 46 U.S.C. 12120 includes special vessel documentation provisions for the transport of LNG or LPG exclusively to Puerto Rico from other U.S. ports. This provision allows qualifed, existing LNG carriers to enter pro- tected trade to Puerto Rico under the U.S. fag. 15. London, L. H., "ICS Set to Lobby U.S. on LNG Shipping Bill: 'Growing Ameri- can Shipping Act' wants to see LNG exported on U.S.-fag vessels," TradeWinds, August 22, 2014. 16. Jayaswal, R., "Government's Stance Prevails; GAIL to hire India-made LNG ships too," The Economic Times, July 22, 2014. 17. Lee, C., "South Korean Shippers, Shipbuilders Compete in Tender to Build 6 New LNG Carriers for Kogas," Platts, October 7, 2014. Open Market Shipping Capacity aside, the International Chamber of Shipping has voiced concern over a perceived cargo reservation and pri- oritization for U.S.-fagged vessels as well as a potential incursion of the Jones Act into international trade. 15 Addi- tionally, in what has been largely viewed as a liberalized shipping market accentuated by the connection of major energy and manufacturing companies in principal import- ing countries, competing national strategies pose an added hurdle for entry in the global market and the ambition to advance a U.S.-fagged LNG carrier feet. Customarily, the tanker owners have been companies controlled by gas pro- ducers as well as importers, which favor long-term contracts. However, as the dynamic shifts and legacy importers realize a greater share of exports, short-term markets may become more commonplace. As the U.S. explores the feasibility of exporting liquefed natural gas on U.S. carriers, the reality is that major U.S. LNG consumers have already angled in favor of their own import interests. Principally, India and South Korea have maneuvered to impose import registry and construction requirements to boost their respective shipping industries. Under the Indian plan, nine new builds will be chartered, three to be built in Indian shipyards, to import approximately 5.8 million met- ric tons of U.S. LNG a year for 20 years, starting in 2017. 16 The South Korean strategy similarly imposes carriage requirements by South Korean shippers on six Korean-built LNG carriers to import 2.8 million metric tons per year for 20 years. 17 Prospective In summary, the growing export potential for American energy presents a certain paradox when correlated with the decline of oceangoing U.S. merchant tonnage. Despite some ancillary factors, there appears to be a global demand for low-cost, U.S.-produced energy such as natural gas. The question is whether or not U.S. shipping can muster sustain- able and cost-effective capacity to capitalize on this export growth potential in time. While foreign energy importers and consumers have already invested in a modern seagoing network with a view of bol- stering their national shipyards and feets, closer to home, domestic shippers grapple with how to bring American natural gas to market without a suitably qualifed feet for

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