California is ramping up its gasoline imports via the Bahamas, a strategy that sidesteps a long-standing U.S. shipping law from 1920. This law requires domestic fuel to be transported using U.S.-built vessels, which can be quite costly.
In November, over 40% of the gasoline imported into California passed through Caribbean ports. At that time, drivers were facing an average price of $4.58 per gallon, marking the highest price in the country and a record for the state.
The gasoline, refined primarily in Texas and Louisiana, is shipped about 1,100 to 1,300 nautical miles to Freeport in the Bahamas. There, it is stored at large hubs before being shipped out again.
Following this, the tankers embark on an additional journey of around 4,000 to 4,500 nautical miles, traversing the Panama Canal before reaching ports like Los Angeles or San Francisco.
The combined sailing distance can range between 5,000 to 6,000 nautical miles, depending on the specific routes taken.
With tankers generally traveling at speeds of 12 to 15 knots, the entire journey can stretch over two to three weeks, factoring in the canal transit and port delays.
This extended route naturally leads to additional costs for transportation, storage, and handling, costs that are ultimately passed on to consumers.
While shipping through the Bahamas might still be more cost-effective than hiring a rare U.S.-flagged tanker, it could introduce complexities and longer transit times, which may influence fuel prices in California.
This indirect route is being utilized to dodge the restrictions imposed by the Jones Act.
That 1920 legislation mandates that goods moved between U.S. ports must use vessels that are both U.S.-built and U.S.-crewed.
Currently, there are only about 55 tankers compliant with the Jones Act globally, in stark contrast to thousands of foreign-flagged vessels, making direct shipping from the Gulf to California quite expensive.
Historically, hiring a foreign-flagged tanker has been much cheaper than using a Jones Act-compliant ship.
Over the last year, foreign vessels were priced nearly $4 per barrel lower than U.S.-flagged ones on similar routes. However, that gap has recently shrunk to about $1 per barrel due to rising regional freight costs.
Even a difference of $1 to $4 per barrel can lead to significant savings on large shipments, which helps clarify why suppliers are opting for the Bahamas route to avoid the higher expenses associated with rare American vessels.
California has become increasingly reliant on gasoline from the Atlantic after the Phillips 66 refinery in Los Angeles shut down in October.
The state has witnessed a wave of refinery closures in recent years, a trend driven by stricter environmental regulations that are raising operational costs for energy firms.
Following the Phillips 66 closure, California’s gasoline imports surged to their highest levels since 2016.
As Valero Energy plans to close its Northern California refinery this spring, motorists might end up paying even more for gasoline.
Current averages have risen from $4.478 last week to $4.58, compared to $4.205 just a month ago. While prices remain below last year’s peak of $4.841, the recent trends suggest a rise as the holiday season approaches. Midgrade is averaging $4.797, premium at $4.996, and diesel prices have exceeded $5, currently at $5.029 per gallon.
California Governor Gavin Newsom’s office has been contacted for comment regarding the situation.
