(Refiling to show in 2nd paragraph company is complying withJones Act)
By Anna Louie Sussman
NEW YORK, April 23 (Reuters) - A massive oil storagefacility in the Bahamas may offer nimble gasoline traders a newway to profit by shipping fuel in foreign ships from theoversupplied U.S. Gulf Coast to the gasoline-thirsty East Coastfollowing a recent U.S. Customs ruling.
The March 6 judgment in favor of Buckeye Partners LP, which owns the Bahamas Oil Refining Company (BORCO) oilstorage hub, allows traders to use lower-cost foreign ships totransport fuels between the Gulf and East Coast via BORCOwithout violating a near-century old law called the Jones Act.
The law requires U.S.-made fuels to be moved betweendomestic ports using a tiny fleet of U.S.-flagged, U.S.-builtand U.S.-crewed ships. It costs three times more to transportwith Jones Act ships than with foreign-flagged ships.
In its ruling, Customs said traders may export to theBahamas certain blending components of gasoline on aforeign-flagged vessel and ship it back to the United States ona foreign-flagged ship if it is blended to produce the gasolinegrades RBOB and CBOB.
The 25-million-barrel BORCO storage hub, the Caribbean'sbiggest, is located less than 100 miles (160 km) from theFlorida coast.
The ruling states the blending must create a "new anddifferent product" for it to be eligible for re-export to theUnited States on a foreign-flagged ship.
Industry participants said the ruling, which came afterearlier petitions from Buckeye in January 2013 and August 2012had failed, could potentially open up a new trading route fromthe Gulf Coast to the East Coast.
By giving traders an alternative to scarce and costlyU.S.-flagged Jones Act ships, the new option could also back outimports from European and Canadian refiners who typically sellgasoline into the U.S. East Coast.
Going via the Bahamas would be "a hell of a lot cheaper"than using a Jones Act vessel, said Jerry Lichtblau, director ofresearch at True North Chartering in Wilton, Connecticut.
With Jones Act tankers commanding as much as $100,000 a dayin the spot market thanks to soaring U.S. energy production,shipping costs from the U.S. Gulf Coast to the New York Harborcan run as much as $6 per barrel, or 14 to 15 cents a gallon,shipping sources said.
Lichtblau estimated the transport costs for the same routevia the BORCO terminal at less than $2 per barrel.
Buckeye could not be reached for comment.
STILL IMPORTING GASOLINE
Shipping industry participants said Buckeye, which boughtthe 44-year-old plant in 2011, has executed the trade a handfulof times since the March 6 ruling and was set to load one cargoof gasoline in BORCO at the end of the month.
It is unclear how much of the 25-million-barrel capacity isdedicated to refined products, or who is trading from there,although Shell Trading Company and JPMorgan Chase & Co have won similar rulings for moving fuel oils throughBORCO in the past. Buckeye's 2012 annual report said threecustomers account for two-thirds of BORCO's storage revenue.
JPMorgan declined to comment.
If the economics work and the trade takes hold, Jones Actship owners and operators could see their stranglehold on theU.S. coastal market loosened.
"If it's done enough, you're backing out potential businessout of the Gulf to Florida," said Bruce Holzberg, a Jones Actbroker at Connecticut-based shipbroker MJLF.
Even with record domestic oil production and gasolineexports, the United States remains a net importer of gasoline,thanks largely to the Jones Act. The U.S. Energy InformationAdministration (EIA) projects total finished motor gasolineimports to average 240,000 bpd this summer.
To be sure, domestically produced gasoline still lands instorage tanks in New York and New Jersey from Houston via theColonial pipeline, but it is not enough to satiate the populousNortheast. Most Jones Act tankers shuttle between Gulf Coastrefiners and Florida ports such as Tampa or Port Everglades.
"Given existing pipeline and tanker constraints, there'sbeen a lot of discussion about how the Gulf Coast could servicethe East Coast with additional volumes of gasoline," said JohnGalante, an analyst with Energy Security Analysis, Inc., inWakefield, Massachusetts. (Reporting by Anna Louie Sussman; editing by Josephine Masonand Cynthia Osterman)
