VES-3-24-OT:RR:BSTC:CCI H242468 WRB
Marjorie F. Krumholz, Esq.
Thompson Coburn LLP
Attorneys at Law
1909 K Street, N.W.
Suite 600
Washington, D.C. 20006
RE: Coastwise Transportation; Lightering; 46 U.S.C. § 55102
Dear Ms. Krumholz:
This letter is in response to your correspondence dated May 22, 2013, on behalf of your client, Excelerate Energy Limited Partnership (hereinafter “Excelerate”), in which you inquire about whether purpose-built, non-coastwise-qualified vessels may be used as floating storage and regasification units (“FSRUs”) to regasify liquefied natural gas (“LNG”) onboard without violating 46 U.S.C. § 55102. Our ruling on your request follows.
FACTS
Excelerate is entering into a project with the Puerto Rico Electric Power Authority or an affiliate (“PREPA”) in which Excelerate will develop, construct, own and operate a LNG terminal located along the southern shore of the Commonwealth of Puerto Rico, in Commonwealth waters, approximately three miles from the shore. The offshore berthing platform (the “platform”) will be a fixed platform carrying all the topside facilities and two berths, one on each side of the platform, employing an “across the dock” configuration. One of Excelerate’s FSRUs will be moored at a berth on the north (landward) side of the platform (the “vessel”). Conventional LNG carriers will temporarily dock on the south (seaward) side of the platform while unloading LNG cargo laden at foreign locations. LNG cargo will be transferred from the LNG carrier to the vessel's cargo tanks using conventional LNG loading arms and cryogenic piping located on the platform’s topside. The vessel will regasify the LNG, and the natural gas will then be moved from the vessel through a high pressure unloading arm located on the platform into a subsea pipeline to an onshore receiving point.
The vessel will arrive at the platform either empty or with LNG onboard that was laden at a foreign location. The vessel will remain stationary (i.e., moored at a single location, the platform), save for
the regular motion of the Vessel in the water while moored,
transit of the vessel to drydocking,
maintenance that cannot be performed dockside, or
movement in response to extreme weather conditions or force majeure events.
The vessel may also be moved from time to time to pick up LNG from foreign locations. The vessel will be substantially free of LNG when it departs for drydock, and any remaining LNG will boil off in transit or upon arrival at drydock. Drydock is not anticipated to occur in the U.S. as there are currently no U.S. shipyards that can accommodate the vessel. If the vessel is moved away from the platform for maintenance that does not require a drydock, any LNG on board at the time of the vessel’s departure will remain onboard until the vessel is returned to the platform. In all instances when the vessel is moved from the platform with LNG on board, the vessel will return to the same location at the platform. From time to time, the vessel may travel to other locations for the purpose of loading LNG cargoes for regasification at the platform and delivery into the pipeline. In such cases, the vessel will only transit between one or more foreign locations and the same location at the platform.
In addition to the foregoing, LNG may be discharged from the vessel while docked at the platform onto smaller vessels for the purpose of moving LNG to other locations in Puerto Rico, the U.S. Virgin Islands, or the Dominican Republic. Such transfer of LNG will be accomplished through the use of flexible hoses attached to the vessel and the smaller vessels. In the event of transporting LNG to another location in Puerto Rico via a smaller vessel, the smaller vessel will be qualified to operate in the coastwise trade. In the case of transport to the U.S. Virgin Islands or the Dominican Republic, the smaller vessels may not be qualified to operate in the coastwise trade. The vessel may also be used to store LNG from time to time.
Excelerate has designated a Belgian-flagged vessel to serve as the initial vessel for the project. Excelerate may substitute other foreign-flagged vessels to serve as the vessel during the 15-year term of the project (or any potential extension terms). When vessels are substituted, they will arrive either empty or with LNG on board that was laden at a foreign location.
Your client has requested a ruling as to whether proposed operations under seven different scenarios involving the storage and transportation of LNG cargo in the vessel would violate the coastwise laws of the United States. The specific factual scenarios involved in the proposed operations for which Excelerate requests this ruling, are as follows:
Scenario No. 1: The use of the vessel while docked at the platform for the purpose of receiving LNG, regasifying LNG, and then sending gas ashore through the use of a high pressure unloading arm located on the Platform.
Scenario No. 2: The movement of the vessel for drydocking or other maintenance with LNG on board without any discharge of LNG and on the condition that the vessel returns to the same location at the Platform.
Scenario No. 3: The movement of the vessel in response to extreme weather conditions or other force majeure events with LNG on board without any discharge of LNG and on the condition that the vessel returns to the same location at the platform.
Scenario No. 4: The movement of the vessel to other locations outside of the United States for the purpose of loading LNG cargoes for return to the platform for regasification and delivery to the pipeline.
Scenario No. 5: The storage of LNG on the vessel while docked at the platform.
Scenario No. 6: The discharge of LNG from the vessel while docked at the platform via flexible hoses to other smaller vessels for the purpose of movement of LNG to another location in Puerto Rico.
Scenario No. 7: The discharge from the vessel while docked at the platform via flexible hoses to other smaller vessels for the purpose of moving LNG to the U.S. Virgin Islands or the Dominican Republic.
ISSUE
Whether the proposed operations constitute engagement in coastwise trade for purposes of 46 U.S.C. § 55102?
LAW AND ANALYSIS
The Jones Act, former 46 U.S.C. App. § 883 recodified as 46 U.S.C. § 55102, pursuant to P.L. 109-304 (October 6, 2006), states that “a vessel may not provide any part of the transportation of merchandise by water, or by land and water, between points in the United States to which the coastwise laws apply, either directly or via a foreign port” unless the vessel was built in and documented under the laws of the United States and owned by persons who are citizens of the United States. (See also 19 C.F.R. §§ 4.80, 4.80b). Such a vessel, after it has obtained a coastwise endorsement from the U.S. Coast Guard, is said to be “coastwise qualified.” The coastwise laws generally apply to points in the territorial sea, which is defined as the belt, three nautical miles wide, seaward of the territorial sea baseline, and to points located in internal waters, landward of the territorial sea baseline. U.S. Customs and Border Protection (“CBP”) Regulations (19 CFR § 4.80b(a)), promulgated pursuant to the aforementioned statute, provide, in pertinent part, as follows:
A coastwise transportation of merchandise takes place, within the meaning of the coastwise laws, when merchandise laden at a point embraced within the coastwise laws (“coastwise point”) is unladen at another coastwise point…” (Emphasis added)
For purposes of the Jones Act, merchandise includes “valueless material.” See 46 U.S.C. § 55102(a)(2).
Scenario No. 1: With regard to your clients’ proposed use of a non-coastwise-qualified FSRU vessel while docked at the platform for receiving LNG, regasifying LNG, and then sending the gas ashore through the use of a high pressure unloading arm located on the platform, CBP regulations provide that coastwise transportation of merchandise takes place within the meaning of the coastwise laws when merchandise laden at a point embraced within the coastwise laws (“coastwise point”) is unladen at another coastwise point. See 19 CFR §4.80b(a). In the present matter, your client contemplates using the vessel in a stationary position, docked alongside a fixed platform to receive, regasify, and send ashore natural gas.
While this appears to be a matter of first impression to us, we have examined other similar activities. In HQ 115293 dated, March 7, 2001, we examined the case of a Floating, Production, Storage, and Offloading (FPSO) unit moored on the Outer Continental Shelf (OCS). In that matter we determined that, “…(a)s long as any oil or natural gas laden aboard an FPSO at its point of attachment on the OCS is not transported by the FPSO to another coastwise point where it is unladen, there is no coastwise transportation of merchandise and therefore the FPSO need not be coastwise-qualified.” Similarly, in Headquarters Ruling 115217, dated December 7, 2000, we determined that the use of a foreign-built, foreign-flagged vessel serving as a Floating Offshore Service Facility (FOSF), anchored to the Outer Continental Shelf (OCS) for the purpose of providing logistics support and other services for the exploration, development or production of OCS resources, did not violate the coastwise laws. In that matter, the FOSF vessel received merchandise and passengers for further delivery to OCS platforms and other units through vessel deliveries from U.S. ports, vessel deliveries from foreign ports, and during visits by the FOSF vessel itself to foreign ports. The merchandise and passengers would be retained onboard the FOSF, then delivered to OCS platforms and other units. We also ruled that the foreign-flagged, foreign-built FOSF vessel would not violate the coastwise laws if it departed from and subsequently returned to its same OCS anchorage without lading or unlading merchandise or passengers at another coastwise point during such transit. The same determination is appropriate here. Should the vessel return to a coastwise point to discharge residual cargo, it must do so at the same coastwise point where the cargo was originally loaded in order to avoid a violation of 46 U.S.C. § 55102.
We are also of the opinion that the use of the loading/unloading arms to move LNG from a conventional LNG carrier to the vessel and to deliver regasified natural gas from the vessel to the pipeline does not implicate the coastwise laws because the movement of LNG or natural gas is not being performed by a vessel. As stated above, 46 U.S.C. § 55102 only applies when the transportation, either in whole or in part, is being carried out by a vessel. Cranes, as discussed in prior Customs rulings, provide an analogy to the use of loading arms. We have long held that the movement of merchandise between two coastwise points solelyby a crane mounted on a vessel does not violate the coastwise laws. A vessel may lift merchandise with its crane at one coastwise point, have the crane pivot on its axis while the vessel remains stationary, and deposit the merchandise at another coastwise point without implicating the coastwise laws. See Ruling HQ 115431. The cargo must move exclusively by operation of the crane and not by movement of the vessel, except for necessary movement which may be incidental to the lifting operation while it is taking place. See Ruling HQ 115938. In the proposed scenario, the loading arms, in combination with piping on the platform, move the LNG from one coastwise point (the conventional LNG carrier docked at one side of the platform), to the other coastwise point (the vessel docked at the other side of the platform). Likewise, once the LNG is onboard the vessel and regasified, it would be unloaded into the pipeline using a high pressure unloading arm. The movement of natural gas via a mechanical arm is analogous to movement of cargo by a crane and, therefore, such movement may be undertaken without violating the coastwise laws so long as the vessel in question remains stationary.
Scenario No. 2: With regard to your clients’ intent to move the vessel for drydocking or other maintenance, you indicate that if the vessel is moved for drydocking with LNG onboard, it will not return with LNG because the LNG will be boiled off in transit or at drydock so there will be no LNG on board when it returns to the Platform. Your client states that, should the vessel move with LNG onboard, there would be no discharge of LNG and that the vessel would return to the same location at the platform.
As we discussed in HQ 115150, dated September 27, 2000, CBP Regulations (19 CFR § 4.80b(a)) promulgated pursuant to 46 U.S.C. § 55102, provide, in pertinent part, that a “ …coastwise transportation of merchandise takes place when merchandise laden at a point embraced within the coastwise laws (‘coastwise point’) is unladen at another coastwise point,…” In that matter, we determined that neither the relocation of a Floating Storage and Offloading Unit between coastwise points with its cargo tanks empty, nor its movement off location and subsequent return to that same location without unlading its cargo, constituted coastwise transportation.
Accordingly, we are of the opinion that a movement of the vessel for drydocking or other maintenance with its cargo tanks empty would not violate 46 U.S.C. § 55102. Similarly, should the vessel be moved for drydocking or other maintenance and subsequently return to that same location without unlading its cargo, no violation of the coastwise laws would occur. However, should the vessel depart the platform for drydocking or other maintenance with LNG in its tanks and arrive at another coastwise point with LNG still in its tanks which is then allowed to boil off, we are of the opinion that an unlading would have occurred at the second coastwise point in contravention of 46 U.S.C. § 55102.
Scenario No. 3: It has been CBP’s longstanding position that, if a vessel is being loaded or unloaded and must be moved to another location because of stress of weather or other reason involving the vessel's safety, and is subsequently returned to the same point to continue its loading or unloading, and loads or unloads no merchandise at any other point in the United States, the coastwise laws are not violated. See HQ 116007, dated July 25, 2003, and see also HQ 110127, dated April 5, 1989. Similarly, in HQ 115150 dated September 27, 2000, we discussed the movement of a non-coastwise-qualified floating storage and off-loading (FSO) unit under exigent circumstances. We determined that such a vessel could move under those circumstances, even when laded with cargo, provided it subsequently returned to the same location without having unladed its cargo. The contemplated emergency conditions included such scenarios as the threat of fire, hurricane, or other conditions threatening the structural integrity of the FSO and the physical safety of its crew. In that matter, we held that neither the relocation of the FSO between coastwise points with its cargo tanks empty, nor its movement off location and subsequent return to that same location without unlading its cargo, constituted coastwise transportation. “Customs (now CBP) also has held that if the vessel is being loaded or unloaded and must be moved to another location because of stress of weather or other reason involving the vessel's safety, subsequently is returned to the same point to continue its loading or unloading, and neither loads nor unloads merchandise at any other point in the United States, the coastwise laws are not violated.” See Letter to Underwater Construction, Inc., C.S.D. 89-107, 23 Cust. & Dec., No. 44, 8, 9 (1989). We are of the opinion that the same holds true in the present matter. Accordingly, the movement of a non-coastwise-qualified FSRU due to the stress of weather or other reasons involving the vessel's safety, does not constitute a coastwise movement, provided the vessel subsequently returns to the same point to continue its' loading or unloading, and neither loads nor unloads merchandise at any other point in the United States.
Scenario No. 4. With regard to your clients’ proposed movement of the vessel to locations outside of the United States for the purpose of loading LNG cargoes for return to the platform for regasification and delivery to the pipeline, the vessel would essentially be acting in the role of an LNG tanker. As the vessel is not coastwise-qualified due to its foreign build, it may not transport LNG between two coastwise points without violating 46 U.S.C. § 55102. As discussed supra, CBP regulations provide that coastwise transportation of merchandise takes place within the meaning of the coastwise laws when merchandise laden at a point embraced within the coastwise laws (“coastwise point”) is unladen at another coastwise point. See 19 CFR §4.80b(a). Because the transportation in this scenario would occur between a coastwise point and a foreign point, there would be no violation of 46 U.S.C. § 55102.
Scenario No. 5. We have previously examined matters similar to your clients contemplated use of a non-coastwise-qualified vessel for the storage of LNG while docked at the platform. In HQ 116007, dated July 25, 2003, CBP examined the use of a foreign-flagged vessel to store a cargo of butane. In that matter, the cargo would have been laden at Marcus Hook, Pennsylvania, and the loaded vessel shifted to a lay berth on the Delaware River or offshore anchorage. At the end of the storage period, the vessel was to re-berth at the original loading point at Marcus Hook and return the full cargo to the shore tanks. In that matter, we determined that the proposed use of the vessel would not constitute a violation of the coastwise laws, since the coastwise point of loading and unloading were the same. We also stated, citing HQ 115731, dated, September 10, 2002, that CBP, “…consistently has held that the use of a foreign-flag vessel as a storage facility in United States territorial waters does not violate the coastwise laws, or any other law administered by CBP, provided that the vessel remains stationary.” We are of the opinion that the same determination obtains in the present matter, as the vessel will remain stationary during its service as a storage unit while receiving, storing and regasifying LNG and discharging natural gas into the pipeline. Accordingly, the proposed use of a non-coastwise-qualified vessel as a storage facility while regasifying and storing LNG as described above does not constitute a violation of 46 U.S.C. § 55102.
Scenario No. 6. Regarding your clients’ plan to discharge LNG from the vessel while docked at the platform via flexible hoses to other smaller vessels for the purpose of movement of LNG to another location in Puerto Rico, we are of the opinion that a coastwise movement will occur if LNG is laden by flexible hoses into smaller vessels at the platform and then unladen at other locations within Puerto Rico because the transportation will be conducted by vessels between coastwise points.
Title 46, United States Code, § 55101, entitled, “Application of coastwise laws” provides:
(a) In General.--Except as provided in subsection (b), the coastwise laws apply to the United States, including the island territories and possessions of the United States.
(b) Exceptions.--The coastwise laws do not apply to--
(1) American Samoa;
(2) the Northern Mariana Islands, except as provided in section 502(b) of the Covenant To Establish a Commonwealth of the Northern Mariana Islands in Political Union With the United States of America (48 U.S.C. 1801 note);
(3) Canton Island until the President declares by proclamation that the coastwise laws apply to Canton Island; or
(4) the Virgin Islands until the President declares by proclamation that the coastwise laws apply to the Virgin Islands.
For the purposes of the navigation laws, the United States is defined by 46 U.S.C. § 114, which provides:
In this title, the term ‘United States’, when used in a geographic sense, means the States of the United States, the District of Columbia, Guam, Puerto Rico, the Virgin Islands, American Samoa, the Northern Mariana Islands, and any other territory or possession of the United States
Accordingly, the coastwise laws regarding the transportation of merchandise, including LNG, are applicable to coastwise movements in and around Puerto Rico. As discussed supra, CBP regulations provide that coastwise transportation of merchandise takes place within the meaning of the coastwise laws when merchandise laden at a point embraced within the coastwise laws (“coastwise point”) is unladen at another coastwise point. See 19 CFR §4.80b(a). Because the transportation in this scenario would occur between coastwise points, coastwise-qualified vessels must be used to avoid a violation of 46 U.S.C. § 55102.
Scenario No. 7. Regarding your clients’ plan to discharge LNG from the vessel while docked at the platform via flexible hoses to other smaller vessels for the purpose of moving LNG to the U.S. Virgin Islands or the Dominican Republic, we are compelled to examine the applicability of the coastwise laws to these two locations. As you have noted, the Virgin Islands are statutorily exempted from the application of the coastwise laws, to the extent determined by Presidential proclamation. The chapter of the United States Code which contains the coastwise laws provides in 46 U.S.C. § 55101, that the coastwise laws apply to the United States, including the island territories and possessions of the United States, with the pertinent exception, "The coastwise laws do not apply to--(3) the Virgin Islands until the President declares by proclamation that the coastwise laws apply to the Virgin Islands." A similar provision is found at 48 U.S.C. § 1405c, which provides:
(b) Applicability of United States law. Except as otherwise expressly provided, all laws of the United States for the protection and improvement of the navigable waters of the United States shall apply to the Virgin Islands.
(c) Applicability of tonnage duties. No Federal laws levying tonnage duties, light money, or entrance and clearance fees shall apply to the Virgin Islands.
(d) Presidential determination of applicable laws. The Legislature of the Virgin Islands shall have power to enact navigation, boat inspection, and safety laws of local application; but the President shall have power to make applicable to the Virgin Islands such of the navigation, vessel inspection, and coastwise laws of the United States as he may find and declare to be necessary in the public interest, and to the extent that the laws so made applicable conflict with any laws of local application enacted by the Legislature, such laws enacted by the Legislature shall have no force and effect.
The notes to 48 U.S.C. § 1405c also discuss the Presidential proclamation regarding the coastwise laws' applicability to the Virgin Islands, saying:
Ex. Or. No. 9170 of May 21, 1942, 7 Fed. Reg. 384, provided:
"It is ordered that all of the navigation and vessel inspection laws of the United States be, and they are hereby, made applicable to the Virgin Islands of the United States, with the following exceptions:
"(1) The coastwise laws of the United States.
"(2) The act of Congress approved June 7, 1897 (30 Stat. 96), as amended by the acts of February 19, 1900 (31 Stat.
30), May 25, 1914 (38 Stat. 381), March 1, 1933 (47 Stat. 1417), August 21, 1935 (49 Stat. 668, 669), May 20, 1936
(49 Stat. 1367), and April 22, 1940 (54 Stat. 150).
"(3) So much of the vessel inspection laws of the United States as requires the inspection as a passenger vessel of any cargo vessel, foreign or domestic, when carrying more than twelve passengers or persons in addition to the crew.
"(4) Federal laws levying tonnage duties, light money, or entrance and clearance fees."
Therefore, the coastwise laws have not been extended by Presidential proclamation to the Virgin Islands at this time. Similarly, the Dominican Republic is a foreign country to which the coastwise laws are inapplicable. Accordingly, the transportation of LNG between coastwise points in Puerto Rico and the U.S. Virgin Islands or the Dominican Republic may be accomplished by non-coastwise-qualified vessels without violating 46 U.S.C. § 55102.
HOLDINGS:
The proposed use of a non-coastwise-qualified vessel in a stationary position, docked alongside a fixed platform to receive, regasify, and send ashore natural gas, as described above, does not constitute engagement in the coastwise trade for purposes of 46 U.S.C. § 55102.
The movement of a non-coastwise-qualified vessel for drydocking or other maintenance with its cargo tanks empty does not violate 46 U.S.C. § 55102. Should the vessel be laden with cargo and it moves for drydocking or other maintenance and subsequently returns to that same location without unlading its cargo, no violation of the coastwise laws would occur. However, should the vessel depart the platform for drydocking or other maintenance with LNG in its tanks and arrive at another coastwise point with LNG still in its tanks which is then allowed to boil off, we are of the opinion that an unlading would have occurred at the second coastwise point in contravention of 46 U.S.C. § 55102.
The movement of a non-coastwise-qualified FSRU due to the stress of weather or other reasons involving the vessel’s safety, does not constitute a coastwise movement, provided the vessel subsequently returns to the same point to continue its’ loading or unloading, and neither loads nor unloads merchandise at any other point in the United States.
The proposed use of a non-coastwise-qualified vessel to transport LNG between a coastwise point and a foreign point, as described above, would not result in a violation of 46 U.S.C. § 55102.
The use of a non-coastwise-qualified vessel as a stationary storage facility while regasifying and storing LNG as described above would not constitute a violation of 46 U.S.C. § 55102.
The discharge of LNG from a non-coastwise-qualified vessel while docked at the platform via flexible hoses to other smaller vessels for the purpose of movement of LNG to other locations in Puerto Rico would not result in a violation of 46 U.S.C. § 55102, provided that the smaller vessels which would receive the LNG are coastwise-qualified. Use of non-coastwise-qualified vessels for the described transportation would result in a violation of 46 U.S.C. § 55102.
Sincerely,
George Frederick McCray
Supervisory Attorney-Advisor/Chief
Cargo Security, Carriers and Immigration Branch
Office of International Trade, Regulations & Rulings
U.S. Customs and Border Protection