By Timothy Gardner and Ayesha Rascoe
WASHINGTON (Reuters) - The government on Friday sought to ease the fuel crunch paralyzing the storm-struck Northeast saying the military would buy motor fuel and truck it there and allow foreign tankers from the Gulf of Mexico to deliver oil products.
The Department of Homeland Security waived the Jones Act, a law that normally prohibits foreign-flagged vessels from shipping gasoline, diesel and other petroleum products, from the Gulf of Mexico to Northeastern ports. The waiver, effective immediately, requires shipments to leave the Gulf region by November 13 and arrive in the Northeast within a week.
With power still out at many ports and gasoline stations hit by superstorm Sandy and as petroleum supplies were robust before the storm, it was unclear how much fuel was needed immediately and how quickly it could get to customers.
The Energy Department also announced that it was tapping the Northeast Heating Reserve for the first time, releasing about 48,000 barrels of ultra-low sulfur diesel for the Defense Department to distribute to local and federal responders in New York and New Jersey.
The fuel will be used to supply emergency equipment, generators, buildings, trucks and other vehicles.
The Defense Department will begin drawing down as soon as Saturday from the reserve, created in 2000, which holds about a million barrels of diesel. It expects to give back the fuel within 30 days.
In another move to ease the shortages, the Obama administration also directed the Defense Logistics Agency to purchase up to 380,000 barrels of unleaded gasoline and 317,000 barrels of diesel for distribution to storm-stricken areas. This purchase will be delivered by tanker trucks, the Federal Emergency Management Agency said in a statement.
Earlier in the week the administration also waived clean gasoline rules throughout most of the eastern seaboard as it struggled to take action after the deadly storm.
ONE WAIVER REQUESTED
Homeland Security said it had received only one request from a company, which it did not identify, to waive the Jones Act.
The law, part of the 1920 Merchant Marine Act, was created to support domestic jobs in the shipping industry. It requires goods moved between U.S. ports to be carried by ships built domestically and staffed by U.S. crews.
The American Maritime Partnership (AMP), a domestic maritime industry group, said it was not aware of any cases where U.S. vessels had not been available to transport fuel, but it supported waivers in the aftermath of the massive storm.
"We will not oppose waivers that are necessary to facilitate delivery of petroleum products into the regions affected by Hurricane Sandy," AMP said in a letter to President Barack Obama and heads of several government departments.
Benchmark New York Harbor gasoline futures dropped 5 cents, or 2 percent, on news of the waivers, which could allow shippers to divert cargoes en route to Europe or Latin America to the depleted Northeast market.
NO URGENT NEED?
Craig Fugate, the head of FEMA, told reporters several government agencies were trying to figure out how many ships were available. He said the Energy Department held a conference call with major suppliers.
"We're working ... on which ships can be potentially diverted to New York," Fugate said.
Shipping sources said the slow return of power to ports in the New York Harbor had them considering delivering fuel to nearby cities such as Boston.
Energy experts said the waiver might not bring immediate relief to fuel-strapped New York and New Jersey, where two refineries were shut by Sandy. But, in the longer term, shipping alternatives could help ensure steady supply throughout the Northeast.
"There appears to be no urgent need at the moment" for a Jones Act waiver, said Bob McNally, head of Washington-based consulting firm the Rapidan Group. He said shortages so far have been at the retail level rather than the maritime import level.
David Goldwyn, who headed international energy affairs at the U.S. State Department until early 2011, said the waiver could boost the ability to deliver fuel to the East Coast now that tankers that were set to go to Europe or other destinations can dock there without restriction.
"The travel from Gulf Coast to the East Coast is pretty quick," said Goldwyn, who currently runs Goldwyn Global Strategies, an energy research and strategy company.
(Additional reporting by Roberta Rampton, Susan Cornwell and Robert Campbell in New York; Editing by Gerald E. McCormick, Phil Berlowitz, Jim Marshall, David Gregorio, Bernard Orr and Lisa Shumaker)