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Offshore Energy Battle Looms Over ‘Must Pass’ Defense Bill

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Peter Cohn

Washington (TNS) — One of the most underappreciated high-stakes legislative fights in recent memory — featuring some of the strangest political bedfellows — is coming soon to a lame-duck session near you. online news

The issue: House-passed legislation attached to that chamber’s version of the National Defense Authorization Act that would require the use of U.S. crews or similarly paid workers on foreign vessels servicing offshore energy projects.

The idea is that by barring cheaper labor from low-wage countries, U.S. offshore services firms can better compete on price and ultimately drive more domestic shipbuilding. But powerful forces working against the measure have kept it out of the Senate’s NDAA, with both sides scrambling to influence the post-election outcome.
In one corner: offshore wind developers, suppliers and investors led by American Clean Power, the umbrella group for renewables, working hand in glove to block the House proposal with the oil and gas sector and its big kahuna trade association, the American Petroleum Institute.

They argue the House-passed “manning and crewing” requirements will stall offshore drilling and wind projects at a time when high fuel prices are walloping consumers and jeopardize President Joe Biden’s target of reaching 30 gigawatts of offshore wind power deployed by 2030.

If it’s not the first time Sens. Ted Cruz, R-Texas, and Edward J. Markey, D-Mass., have been on the same side of an issue, it’s got to be close. The duo helped keep similar legislation out of the Senate Commerce panel’s Coast Guard reauthorization bill, later attached to that chamber’s NDAA.

Backing the House bill are U.S.-based commercial shipyards and vessel suppliers led by their trade groups, the Offshore Marine Services Association and Shipbuilders Council of America, alongside maritime trade unions.

They aren’t household names like the oil and gas giants and electric utilities opposing the House bill. But shipbuilders like Louisiana-based Bollinger Shipyards and Edison Chouest Offshore have their own friends in high places, like House Minority Whip Steve Scalise, R-La., who’s poised to become majority leader if Republicans take the House, and Senate Commerce ranking member Roger Wicker, R-Miss.

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Wicker, who’s sympathetic to both sides, tried to broker a compromise before his panel’s Sept. 14 Coast Guard markup. But the talks ended without a deal, and the panel reported out a version silent on manning and crewing requirements. Senate Armed Services leaders added the Commerce-reported Coast Guard bill to the nearly 3,000-page NDAA version they unveiled Oct. 11.

Without a guarantee of Senate floor time, the chambers have been “pre-conferencing” the NDAA over the recess.

The Senate Commerce and House Transportation panels working on the Coast Guard title have discussed exemptions and phase-ins for the new offshore worker mandate to carve out foreign vessels that either aren’t built in the U.S. or are in short supply. But it wasn’t clear whether an accord is possible, with energy companies and the foreign marine contractors backing them holding firm against any version of the House language thus far, according to people familiar with the talks.

‘Bring these jobs home’

House Transportation and Infrastructure Chair Peter A. DeFazio, D-Ore., backed the offshore worker legislation as an amendment to his chamber’s Coast Guard reauthorization measure that was later tacked onto the defense bill.

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DeFazio said at the March 2 Coast Guard markup that he supports Biden’s “grand plans for offshore wind,” but noted that the wind industry “stiffed us because they threw in with the oil and gas industry” on a related issue during the previous Coast Guard reauthorization debate.

“At some point, we’ve got to bring these jobs home,” said the retiring DeFazio, a close ally of transportation unions throughout his 36-year House career. “We’ve got to rebuild our industry here in the United States of America.”

The panel adopted the amendment from Reps. Garret Graves, R-La., and John Garamendi, D-Calif., on a 59-2 vote at the markup, a lopsided margin that stunned even its backers. The House later passed the Coast Guard bill, 378-46, on March 29.

During floor debate, DeFazio promised Democratic critics that he’d work with them in conference to protect wind projects closest to completion. He cited Vineyard Wind, which is set to become the first U.S. utility-scale offshore wind farm, backed by Danish investors and Spanish-controlled Avangrid Inc., a big northeastern U.S. utility.

But the Coast Guard measure stalled in the Senate, and the issue festered for months until House leaders on July 14 tacked the House bill onto their “must-pass” NDAA, upping its chances to become law. On the same day, House opponents of the Graves-Garamendi bill led by Jake Auchincloss, D-Mass., and other northeastern Democrats wrote to Senate Commerce leaders urging them to keep it out of that chamber’s not-yet-written Coast Guard bill.

They wrote that the new requirements could stall up to 33 East Coast wind projects and threaten thousands of jobs, including at Vineyard Wind and Dominion Energy-backed Coastal Virginia Offshore Wind, the largest currently in development. Some heavy hitters on the Democratic side signed Auchincloss’ letter, including Assistant Speaker Katherine M. Clark of Massachusetts, Caucus Chair Hakeem Jeffries of New York and House Appropriations Chair Rosa DeLauro of Connecticut.

Graves, a Baton Rouge-area lawmaker and former congressional staffer, has been a friend to his home-state shipyards, while Garamendi is close to maritime unions backing the bill. Sen. Bill Cassidy, R-La., introduced the Senate version.

Graves in an interview and Garamendi’s spokesman by email said they’ve been ready to negotiate since March. Graves said he approached Auchincloss at the Coast Guard markup to offer exemptions for existing projects, only to be rebuffed.

“I said if there’s any project sponsor who says that this is going to adversely affect their project that’s in the queue, that we would be happy to include a grandfather or . . . some type of exclusion,” Graves said. “It’s just difficult to, you know, negotiate with yourself.”

An Auchincloss spokesman confirmed that he’s not interested in a middle-ground approach. “Our position remains the same, the entire amendment needs to be scrapped,” he said.
Opponents of the House bill appear content to run out the clock in the lame-duck session and rely on their Senate firewall, Graves said.

“If folks aren’t going to come to the table, I guess they’re going to rely upon one or two senators that they think are carrying their water,” added Graves. “And I just don’t think that there’s going to be tolerance for one or two people trying to carry the water for a really industry-specific provision like this. It’s really going to hold things up.”

If there isn’t a formal NDAA conference report, some say the House could opt to “jam” the Senate by sending over a new version with a reasonable compromise on manning and crewing rules. As one official put it: “I don’t see many worlds where you vote ‘no’ on the NDAA because you don’t want to pay American workers.”

But it’s worth noting that Rhode Island’s House delegation signed the Auchincloss-led letter, and the most senior Rhode Islander in Congress is Democratic Sen. Jack Reed, the Armed Services chairman. Sen. James M. Inhofe, R-Okla., the panel’s ranking member, is close to the oil and gas industry.

Aides to Reed and Inhofe didn’t comment for this article, nor did staff for Senate Commerce Chair Maria Cantwell, D-Wash., who hasn’t taken a public position on the House’s offshore worker language.

Jones Act

The debate’s genesis lies in the 1953 Outer Continental Shelf Lands Act, which ensured that U.S. laws applied to the “subsoil and seabed” in coastal waters and “installations and other devices permanently or temporarily attached to the seabed,” including those intended for offshore oil and gas exploration. A Garamendi-authored amendment to the fiscal 2021 NDAA clarified the law’s applicability to “non-mineral energy resources,” i.e., offshore wind.

Accordingly, most offshore energy projects are now subject to the 1920 Jones Act, which requires vessels transporting merchandise between two U.S. points — including structures attached to the seabed like drilling rigs and wind farms — to be built, crewed and mostly owned by Americans.

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Jones Act definitions of “merchandise” and what constitutes a “U.S. point” have evolved over the years though litigation, legislation and regulation. For example, mobile offshore drilling units that aren’t attached to the seabed aren’t covered by the law. Heavy-lift construction vessels don’t need to comply, nor do vessels that lay pipelines and power cables, conduct scientific surveys or are deemed to be carrying “equipment,” not “merchandise.”

But the Jones Act generally applies to vessels operating in the offshore energy trade, including the wind turbine installation vessels, or WTIVs, critical for those projects. There are currently no U.S.-flagged WTIVs, so offshore wind developers have gotten around that problem by using Jones Act-compliant barges to ferry supplies out to the big foreign vessels.

Congress in 1978 also established that only U.S. citizens or green card holders could be employed for manning and crewing vessels in offshore exploration, with an exemption for vessels more than 50 percent foreign-owned and controlled.

But Coast Guard regulations allowed foreign firms to hire mariners from other nations rather than the vessel owner’s home country, an arrangement critics say has led to a boom in cheap labor imported from places like India, Malaysia, China, the Philippines and Eastern Europe.
The Graves-Garamendi bill would attack those manning and crewing exemptions and, indirectly, holes in the Jones Act. It would require that, 120 days after enactment, foreign vessels currently operating with Coast Guard certification would have to reapply while establishing that their crew members are either U.S. citizens or citizens of the nation’s flag under which the vessel is registered.

For instance, if a ship is Norwegian- or Danish-flagged, the crew would have to be 100 percent higher-paid Norwegian or Danish workers; typically, they’d make up a much smaller percentage. It’s also intended to clamp down on vessels flying “flags of convenience” from nations like Panama or the Bahamas where owners are lightly regulated and taxed, since qualified mariners typically come from elsewhere.

Under those circumstances, backers say, the bill would level the playing field by making it more attractive to hire U.S.-flagged vessels.

Incentives, not mandates

Energy companies tout the substantial offshore work that’s already being done by U.S. vessels and crews under current law, with union labor prevalent particularly in East Coast wind projects. Domestic shipbuilders like Edison Chouest, which is building the first Jones Act-compliant, multipurpose “service operations vessel” for Northeast wind farms, stand to benefit.

But the U.S. market remains underdeveloped compared with foreign rivals when it comes to high-demand, low-availability vessels like mobile drilling units, pipe- and cable-laying vessels, heavy-lift ships and WTIVs. The mantra from energy companies is that more government financial incentives are needed to build up domestic capacity, rather than government mandates.

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Statistics kept by the International Marine Contractors Association show a big disparity in the number of offshore service and supply vessels that are foreign-flagged versus U.S.-flagged. The Energy Department estimates at least five WTIVs are needed to meet Biden’s 2030 offshore wind timeline; industry analysts say only five exist, and are in high demand for projects around the world.

Dominion commissioned the first Jones Act-compliant WTIV being built in Brownsville, Texas, by a Singapore-based firm. But at a price tag that could hit $600 million, that’s nearly double what it costs to produce similar vessels in Asia, according to IMCA. Construction, which began in late 2020, could take at least three years.

Citing market conditions, Monaco-based wind developer Eneti Inc. earlier this year abruptly scrapped plans to build the second Jones Act-compliant WTIV. And the industry’s fear is that even if lawmakers agree to a multiyear grandfathering rule before the new mandate hits, prospective vessel buyers won’t take the risk.

Further, critics of the House bill say there are too few qualified mariners from the U.S. or from nations that pay comparable wages. An API-commissioned economic analysis found that under the House bill, available vessels would fall short of expected demand for oil and gas and wind projects by 18 percent on average between 2022 and 2030 due to lack of qualified workers, from cooks to engineers to captains.

To domestic shipyards and suppliers, that’s all bunk. They argue one reason the market for heavy-lift vessels, drillships, pipe- and cable-laying vessels and more is dominated by foreign shipbuilders is because of Jones Act “loopholes.”

Even so, foreign firms often make use of vessels converted from barges and other supply ships that are readily available in the U.S., including Maltese- and United Kingdom-flagged cable-laying vessels upgraded in foreign shipyards that Vineyard Wind hired. U.S. shipyards often perform those types of conversions, typically in a matter of months, an industry official said.

Industry groups have tracked other examples of foreign vessels supplanting U.S.-based suppliers: a Bahamian-flagged research vessel operating on East Coast wind projects, and Cyprus- and Panama-flagged scientific vessels doing Gulf of Mexico drilling work. Meanwhile, there are 320 out-of-work U.S. supply vessels languishing in the Gulf, according to industry officials.

“That’s a job I used to have for 15, 20 years,” says Randy Adams, owner of Cut Off, La.-based Sea Support Ventures in a video posted by the Offshore Marine Services Association showing the Panamanian vessel anchored in the Gulf. “But we don’t get calls because the industry would rather use foreign-flag vessels like this one.”

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And there’s no shortage of money to pay U.S. suppliers, domestic companies say, pointing to the nearly $4.4 billion offshore wind developers paid for East Coast leases in a record-breaking sale earlier this year and monumental profits reported by oil majors. “I think they can employ a U.S. mariner making $100,000 a year,” a domestic industry official said.

Countervailing winds

The competing forces have put DeFazio and Wicker in a tough spot, as neither wants to derail the Coast Guard bill — and no one wants to stand in the way of the NDAA, which has become law for 61 consecutive years.

Wicker knew the votes weren’t there in his panel or the broader Senate for the original Garamendi-Graves measure, according to a Senate GOP aide. Nonetheless, Wicker is “interested in effective policies to strengthen our domestic maritime industry, U.S. shipbuilding, the U.S. Coast Guard, and the Jones Act,” the aide said.

But it’s hard to see what kind of compromise is possible after Wicker’s best efforts to bring stakeholders together fell short in an early September meeting he organized. People familiar with the talks say energy company representatives and foreign contractors rejected proposals to shield vessels that aren’t yet readily available in the U.S. from the House-passed mandates, at least for multiple years to allow domestic capacity to ramp up.

The issue didn’t come up at the following week’s Commerce panel markup. But in a statement for this article, Cruz said he opposed the House language because it would put “new burdens on the energy and construction industry” and exacerbate inflation made worse by Biden’s “Green New Deal policies.” Markey cited the adverse impact on Vineyard Wind, calling the House bill an “immediate threat to union jobs, investment, and clean energy in Massachusetts.”

To Graves and his allies, there’s an element of “us versus them” driving the discussion. Graves repeatedly notes that foreign vessels are bringing Russian mariners into U.S. waters; in the interview, he trained his fire on the foreign companies opposing his bill. And it’s not the first time Graves has tangled with API — he’s been hard on the group for endorsing a price on carbon emissions.

Shareholder climate activism has helped bring U.S. oil majors like Chevron Corp. and Exxon Mobil Corp. on board with renewables. But there’s little question foreign oil giants like U.K.-based Shell PLC and BP PLC and Norway’s state-owned Equinor — which have made noises about “reviewing” their API memberships in the past — have influenced the trade group’s thinking. Shell, BP and Equinor are also among those with major stakes in pending offshore wind projects.

Given that context, maybe renewables and oil and gas aren’t such strange bedfellows after all.

It’s not yet clear how much the midterms will affect the debate. For instance, while Scalise and Wicker, who’s set to take over for the retiring Inhofe at Armed Services, may be ascendant, Cruz is set to become the top Republican on Senate Commerce.

Either way, Graves said, critics of his bill shouldn’t rest easy.

“This issue is not going away. … I think that whether you’re a Republican or Democrat, that our position is the right position if you’re an American,” he said. “And I think that with a strong Republican majority, I’ll just say that I don’t think that that diminishes the support for this provision, if that’s what these folks are betting on.”

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