Session iii m thomas

America’s Energy Revolution Developments and Trends in Ocean Shipping GIC Energy Independence in the Western Hemisphere Conference

November 5, 2015

Matt Thomas Blank Rome LLP Washington, DC

Key Issues Impacting Shipping Now

 US Petroleum Production and Crude Export Debate  International Relations – Impacts on Shipping From Mideast Conflict; Evolution of Iran, Cuba, Russia Sanctions  Environmental Issues Impacting Shipping: - Clean Air Mandates (Clean Fuel Options, LNG Power) - Invasive Species

 Safety  Congestion 2

Two Distinct Maritime Markets  US coastwise laws create two separate maritime markets, international and domestic, each with distinct economics.  Jones Act (46 USC 55102) restricts the U.S. coastwise trade in merchandise to coastwise-qualified vessels.  Jones Act reserves transportation between US points – directly or indirectly – to US-owned and US-built vessels operating under US-flag (with US crews).  Economics for Jones Act tankers (sale, charter rates, operating costs) significantly higher.

“Jones Act Vessel”  Jones Act (“Coastwise Qualified”) vessels must meet stricter requirements: – U.S. built – U.S. flag – 75% U.S. owned at every tier • U.S. President/CEO • U.S. Chairman of the Board • Majority of quorum – Never sold foreign – Owner called a “Coastwise Citizen”

Recent Evolution of Jones Act Energy Trade  2010-2014: Rapid growth of all modes in response to demand for crude infrastructure: rail (with nearly 100% annual growth rates), mid-continent pipelines, barges.  Jones Act tanker order book filled through 2018, with first vessels coming online now.  ~40% increase in Jones Act tanker market capacity

Challenges facing Jones Act operators:  Head-to-head modal competition: significant increases in pipeline capacity have reduced inland barge shipments of crude this year.  However, barge operators continue to benefit from growing refined products and petrochemical production.  Jones Act tankers did not gain major foothold in GulfUSEC crude trade. Nevertheless, rates continue to be strong due to demand for refined products shipping, regional Gulf trade.  Hopes for significant west coast routes hinge on further shoreside infrastructure development.

Key Issues Looking Forward  Crude Oil Exports – What will be the impact of unrestricted exports? Will West African barrels reappear, displacing intra-US transport of light crudes? Impact on US refiners?  What will be the impact on rates of the large expansion of Jones Act capacity 2015-18?  Blending and the role of Caribbean countries in the US energy logistics picture  Enforcement!  Do we have the right U.S. fleet for the future: growth of NGLs and petrochemicals has investors considering specialized ships

US-International Tanker Market Outlook  Crude tanker market currently remains strong, as displaced barrels move on longer ton-mile voyages to Asian receivers.  Close eye on US crude export debate, potential boon to shipping.  Panama Canal expansion – Asia more reachable for US crude and LNG  Growth in LNG and LPG investment, both in vessels and domestic shoreside infrastructure.

Propane, butane and ethane an important part of domestic energy picture.

Questions?

Matt Thomas 202.772.5971 (o) 301.257.6369 (m) MThomas@BlankRome.com