VES-3-02-OT:RR:BSTC:CCR H294296 ASZ
John J. Michael
Vinson & Elkins LLP
1001 Fannin Street, Suite 2500
Houston, Texas 77002
RE: 46 U.S.C. § 55102; Coastwise Transportation; Lightering.
Dear Mr. Michael:
This letter is in response to your correspondence dated March 14, 2018, on behalf of your client New Fortress Energy (“NFE”), in which you inquire about whether your client’s use of a non-coastwise-qualified vessel as a floating storage unit constitutes a violation of 46 U.S.C. § 55102. Our decision follows.
FACTS
NFE is in the process of developing a micro-fuel handling facility (“MFH Facility”) in San Juan, Puerto Rico. The MFH Facility will supply liquefied natural gas (“LNG”) to electricity generators and other customers in Puerto Rico and will be located at Wharfs A, B, and C in San Juan Harbor.
Beginning in June 2018, NFE intends to use a small, foreign-flagged LNG tanker, either [] or [], as a floating storage unit (“FSU”) to receive and transload LNG at the berths in San Juan Harbor. The FSU will be moored at the berths and will receive LNG cargoes via ship-to-ship transfer from foreign-flagged liquefied natural gas carriers (“LNGC”) moored outboard and alongside of the FSU. The LNG cargoes will be laden in Jamaica for shipment to Puerto Rico. NFE anticipates that there will be ten transfers per month.
The FSU will remain stationary at all times, except for regular motion in water while moored, transit for periodic drydocking or other maintenance, movement to accommodate marine traffic to an adjoining berth, or movement in response to extreme weather conditions or force majeure events. In addition, the FSU may be moved to pick up LNG from non-U.S. locations or receive LNG via ship-to-ship transfer beyond the territorial waters of the United States.
Your client proposes the following seven scenarios involving the FSU:
Scenario One: The use of the FSU while moored at its berth for the purpose of receiving and storing LNG.
Scenario Two: The use of the FSU for sending stored LNG ashore through the use of cryogenic transfer arms or a flexible cryogenic product hose.
Scenario Three: The movement of the FSU from its berth with LNG on board in response to extreme weather conditions or other force majeure events without any discharge of LNG and on the condition that the FSU returns to the same location at its berth.
Scenario Four: The movement of the FSU without LNG on board for drydocking or other maintenance.
Scenario Five: The movement of the FSU with LNG on board from its berth to accommodate marine traffic to an adjoining berth without any discharge of LNG and on the condition that the FSU returns to the same location at its berth.
Scenario Six: The movement of the FSU from its berth to locations beyond the territorial waters of the United States for the purpose of loading LNG cargoes via ship-to-ship transfer for return to the MFH Facility and delivery ashore.
Scenario Seven: The movement of the FSU from its berth to a foreign port for the purpose of loading LNG cargoes for return to its berth and unloading the cargoes to the MFH Facility.
ISSUE
Whether the proposed uses of the FSU would constitute a violation of 46 U.S.C. § 55102?
LAW AND ANALYSIS
Pursuant to 46 U.S.C. § 55102, which provides, in pertinent part:
Except as otherwise provided in this chapter or chapter 121 of this title, 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 foreign port, unless the vessel—
(1) is wholly owned by citizens of the United States for purposes of engaging in the coastwise trade; and
(2) has been issued a certificate of documentation with a coastwise endorsement under chapter 121 or is exempt from documentation but would otherwise be eligible for such a certificate and endorsement.
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.
Pursuant to 46 U.S.C. § 55102(a), “[m]erchandise, includes (1) merchandise owned by the United States Government, a State, or a subdivision of a State; and (2) valueless material.” As such, any cargo, regardless of its value or ownership, would be considered merchandise for the purpose of 46 U.S.C. § 55102. The U.S. Customs and Border Protection (CBP) regulations promulgated under the authority of 46 U.S.C. § 55102(a), provide in pertinent part:
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, regardless of the origin or ultimate destination of the merchandise.
19 C.F.R. § 4.80b(a).
Section 4(a) of the Outer Continental Shelf Lands Act of 1953 (OCSLA), provides, in part, that the laws of the United States are extended to:
... the subsoil and seabed of the outer Continental Shelf and to all artificial islands, and all installations and other devices permanently or temporarily attached to the seabed, which may be erected thereon for the purpose of exploring for, developing, or producing resources therefrom, or any installation or other device (other than a ship or a vessel) for the purpose of transporting such resources, to the same extent as if the outer Continental Shelf were an area of exclusive Federal jurisdiction within a State.
Scenario One
In scenario one, you state that the FSU, while moored at its berth in San Juan Harbor, will receive LNG cargoes, laden in Jamaica, from LNGCs moored outboard and alongside the FSU. The LNGCs will discharge LNG into the FSU via a ship-to-ship transfer, and the LNG will be stored aboard the FSU until needed at the MFH Facility. At that time, the LNG will be unloaded from the FSU via a shore-based off-loading system as described in scenario two. You state that the FSU will remain moored and stationary throughout the operation.
The coastwise laws prohibit a non-coastwise-qualified vessel from transporting merchandise between points in the United States to which the coastwise laws apply, either directly or via a foreign port. In the present case, the LNG is loaded at a non-coastwise point and unloaded into the moored FSU by foreign-flagged vessels. As long as the cargo is foreign-laden, a foreign-flagged vessel may unlade the cargo at a U.S. point because there would be no transportation between two or more coastwise points. Insofar as the FSU and LNGCs will not transport LNG between coastwise points, the use of the FSU and LNGCs in scenario one is not a violation of U.S.C. § 55102.
Scenario Two
In scenario two, you state that once the FSU has received the LNG from the LNGCs through the ship-to-ship cargo transfer operation described in scenario one, the FSU, while continuing to remain moored and stationary at its berth in San Juan Harbor, will discharge the stored LNG ashore through the use of cryogenic transfer arms or a flexible cryogenic product hose connecting the FSU manifold to a short fuel transfer header ashore. The transfer header then leads to a twin-bay ISO tank loading system.
The coastwise laws prohibit a non-coastwise-qualified vessel from transporting merchandise between points in the United States to which the coastwise laws apply, either directly or via a foreign port. CBP has consistently held that the use of a foreign-flagged vessel as a storage facility in United States territorial waters does not violate the coastwise laws provided that the vessel remains stationary. HQ 116007 (July 25, 2003) and H242468 (July 10, 2012). In the present case, you state that the vessel will remain moored and stationary at its berth in San Juan Harbor during its service as a storage unit while receiving, storing, and discharging LNG.
You also state that the LNG be discharged from the FSU by the use of cryogenic transfer arms or a flexible cryogenic product hose, and not by the movement of the FSU. Insofar as the FSU will not transport the LNG between coastwise points, the proposed use of the FSU in scenario two is not a violation of 46 U.S.C. § 55102.
Scenario Three
In scenario three, you state that the FSU may move from its berth in response to extreme weather conditions or other force majeure events. The vessel may travel to one or more coastwise points, depending on the circumstances of the extreme weather or force majeure event. Any LNG onboard the FSU during such an event will not be discharged from the vessel until it returns to the same location at its berth in San Juan Harbor.
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. HQ 110127 (Apr. 5, 1989) and HQ 116007 (July 25, 2003).
Accordingly, the movement of a non-coastwise-qualified FSU 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. Therefore, the proposed movement of the FSU described in scenario three is not a violation of 46 U.S.C. § 55102.
Scenario Four
In scenario four, you state that the FSU may move from the wharf at times for drydocking or other maintenance to the vessel. The vessel may also move for maintenance to the MFH Facility, which cannot be performed with the FSU at its berth. You state that the FSU’s LNG cargo tanks will be empty during these movements.
The coastwise laws prohibit a non-coastwise-qualified vessel from transporting merchandise between points in the United States to which the coastwise laws apply, either directly or via a foreign port. Insofar as the FSU’s cargo tanks would be empty, it will not transport merchandise. Therefore, the proposed movement of the FSU described in scenario four is not a violation of 46 U.S.C. § 55102.
Scenario Five
In scenario five, you state that the FSU may temporarily move from time to time to allow for the movement of marine traffic to an adjoining berth. The FSU may have LNG on board during these movements, and in those cases, the FSU will not discharge any LNG until it returns to its original berth.
The coastwise laws prohibit a non-coastwise-qualified vessel from transporting merchandise between points in the United States to which the coastwise laws apply, either directly or via a foreign port. In the instances where the FSU’s cargo tanks would be empty, it will not transport merchandise, and therefore, the movement would not be in violation of 46 U.S.C. § 55102. In the instances where the FSU will depart its berth with LNG in its tanks, you state that it will not discharge any LNG until it returns to its original berth. Insofar as the FSU returns to that same berth without unlading its cargo, no violation of the coastwise laws would occur. Therefore, the proposed movement of the FSU described in scenario five is not a violation of 46 U.S.C. § 55102.
Scenario Six
In scenario six, you state that the FSU will move from its berth to a location beyond the territorial waters of the U.S. at LAT 18 21.5N, LONG 070 38.9W. At that location, the FSU will receive LNG cargoes, laden in Jamaica, from a foreign-flagged LNGC via ship-to-ship lightering operations. The FSU and LNGC would be moored alongside each other, but would not be anchored or attached to the seabed during the transfer. After receiving the LNG, the FSU will return to its berth at the MFH Facility where it will unload the LNG.
The coastwise laws prohibit a non-coastwise-qualified vessel from transporting merchandise between points in the United States to which the coastwise laws apply, either directly or via a foreign port. The Outer Continental Shelf Lands Act of 1953 (OCSLA), extends the laws of the U.S. to “all artificial islands and all installations and other devices permanently or temporarily attached to the seabed, which may be erected thereon for the purpose of exploring for, developing, or producing resources therefrom.” We have long held that the lack of any permanent or temporary attachment to the seabed operates to exclude vessels operating over the OCS from becoming coastwise points pursuant to the OCSLA. HQ 109576 (July 12, 1988); HQ 115431 (Sept. 4, 2001); and H036936 (Jan. 26, 2009). Insofar as the transportation in this scenario would not occur between two coastwise points, there is no violation of 46 U.S.C. § 55102.
Scenario Seven
In scenario seven, you state that the FSU may travel to Jamaica for the purpose of loading LNG and then return to the MFH Facility to unload the LNG. Although the FSU may stop at coastwise points when returning to the MFH Facility from Jamaica, you state that the FSU will not discharge any LNG during its voyages until it arrives back at its berth in San Juan Harbor.
The coastwise laws prohibit a non-coastwise-qualified vessel from transporting merchandise between points in the United States to which the coastwise laws apply, either directly or via a foreign port. Insofar as the transportation in this scenario would occur between a coastwise point and a foreign point, there is no violation of 46 U.S.C. § 55102.
HOLDING
The proposed use of the FSU and LNGCs in scenario one would not constitute a violation of 46 U.S.C. § 55102.
The proposed use of the FSU and LNGCs in scenario two would not constitute a violation of 46 U.S.C. § 55102.
The proposed movement of the FSU in scenario three would not constitute a violation of 46 U.S.C. § 55102.
The proposed movement of the FSU in scenario four would not constitute a violation of 46 U.S.C. § 55102.
The proposed movement of the FSU in scenario five would not constitute a violation of 46 U.S.C. § 55102.
The proposed transportation in scenario six would not constitute a violation of 46 U.S.C. § 55102.
The proposed transportation in scenario seven would not constitute a violation of 46 U.S.C. § 55102.
Sincerely,
Lisa L. Burley
Chief/Supervisory Attorney-Advisor
Cargo Security, Carriers and Restricted Merchandise Branch
Office of International Trade, Regulations and Rulings
U.S. Customs and Border Protection