A Reuters data analysis shows that in the past five months at least 11 oil tankers have loaded - or "lightered" - crude off of super-tankers parked off the Gulf Coast, outside of US waters, and delivered it to PBF Energy's Delaware City and Paulsboro, New Jersey, refineries.
For O'Malley, the aim is to cut costs on PBF's growing imports of Saudi crude, which in the past was shipped across the Atlantic from a pipeline terminal in Egypt. But the moves may also embolden opponents of the Jones Act, a decades-old law that bars foreign-built, -owned or -flagged ships from carrying goods between US ports.
Although PBF's shipments are not subject to the Jones Act because they involve transferring foreign oil from one ship to another outside of US waters, many other companies would like to run a similar route in order to deliver a swelling surplus of discounted domestic crude from Texas to the East Coast.
A growing number of critics say the decades-old Jones Act is antiquated, and the law was briefly suspended recently to alleviate gasoline shortages after Superstorm Sandy devastated the US East Coast. But it is still on the books, and has support from US shippers and other interest groups.
Because most US ports can't accommodate the biggest ocean-going supertankers, lightering crude in the Gulf is an everyday activity, but the oil is usually bound only for local Gulf Coast refineries, not those further afield. Only around 20 such crude shipments were sent to East Coast ports between 2004 and this year, according to the analysis of data from shipping intelligence firm PIERS, which aggregates cargo manifest details from customs data.
Traffic on the route has surged since July, with PBF importing more than 5.5 million barrels, all of it on foreign-flagged vessels, the data show. The switch also coincides with a pick-up in PBF's consumption of Saudi crude, which has doubled at one plant. A PBF spokesman declined to comment for this story, citing a "quiet period" ahead of the company's initial public offering. He also said the company considers logistics and operations information to be "business confidential".
Other companies are angling to ship a surge of light, sweet crude oil produced from the Permian Basin and the Eagle Ford shale oil fields in Texas to thirsty East Coast refiners. But they are faced with a limited supply of US-flagged vessels. Only one Jones Act-compliant medium-range crude oil tanker is currently available in the market, according to MJLF & Associates, a leading broker that deals in US-flagged tankers. Most others are locked up in long-term charters.
But tanker supply isn't a problem for PBF, which can take advantage of global freight rates that are near their lowest in a decade since the lightering occurs in international waters. Although the act has long been considered untouchable due to its strong backing by US shipbuilders, owners and unions, President Barack Obama has twice in the past two years granted waivers to ease the flow of fuel, most recently after Sandy. Morse noted these waivers had caused only a muted outcry among the US shipping industry, partly because the surge in shale output and rapid growth in US gasoline and diesel exports from the Gulf is making the Jones Act harder to defend.