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HQ 113080

May 2, 1994

VES-3-07-CO:R:IT:C 113080 GEV


Ronald J. Gumbaz
Vice President
Delphi Petroleum Inc.
40 Ave. at the Common
Shrewsbury, New Jersey 07702-4532

RE: Coastwise Trade; Fuel Oil; 46 U.S.C. App. ? 883

This is in response to your letter dated April 14, 1994, requesting a ruling regarding a proposed transportation of fuel oil. Our ruling on this matter is set forth below.


Delphi Petroleum Inc. ("Delphi") is a Delaware corporation engaged in the worldwide sale and trade of crude oil and refined petroleum products and is currently under contract to supply fuel oil to the Puerto Rico Electric Power Authority (PREPA) at San Juan, P.R. Delphi has the opportunity to purchase viscous dirty fuel oil manufactured by the Caribbean Petroleum Co. (CAPECO) at its San Juan, P.R. refinery. However, this fuel oil cannot be utilized by PREPA because it does not meet the quality requirements of PREPA in the following four different areas: viscosity, sulphur, vanadium and asphaltenes.

Delphi also has access to a quantity of Yombo crude of Congo origin presently stored at St. Eustatius Terminal, N.A. Delphi proposes to process in tank a quantity of approximately 50% of the Yombo crude with approximately 50% of the CAPECO product with the resultant product meeting PREPA's specifications. The following four transportation scenarios involving a foreign-flag vessel are offered for Customs consideration:

1. Transport the Yombo crude from St. Eustatius to the CAPECO dock at San Juan, P.R. on a foreign-flag vessel. At the CAPECO dock Delphi would load the CAPECO dirty fuel oil onto the vessel and process it it in tank with the Yombo material with the resultant product meeting the quality specifications of PREPA. The PREPA product would then be transported on the foreign-flag vessel approximately 400 yards in San

Juan Harbor to PREPA's dock, Sheds A and B of the Port of San Juan, where it would be discharged to PREPA. This is the safest and most efficient of the four scenarios under consideration because it minimizes the movement of this heavy oil in the environmentally sensitive San Juan Harbor and neighboring waters and results in the oil being discharged from the vessel in the fastest possible time.

2. The resultant product meeting PREPA specifications can be processed on the vessel as detailed in Scenario #1 above, but rather than transport the product on the foreign-flag vessel the approximately 400 yards to the PREPA dock, the vessel would remain anchored at the CAPECO dock. The product would be discharged back to the CAPECO Refinery by the vessel while it remains at the CAPECO dock. The CAPECO Refinery has a small diameter pipeline connection with the PREPA facility. However, because of the small diameter of the pipeline, the pumping rate is very slow which would require the product to remain on the vessel at the dock for a rather long time. This scenario may not be practical because the CAPECO dock is in frequent use and it may not be possible for Delphi's vessel to remain at the dock for the length of time required.

3. The Yombo crude oil could be discharged from the vessel into the CAPECO facility and processed in tank there with the resultant product subsequently loaded onto the foreign-flag vessel and transported the approximately 400 yards to the PREPA dock for discharge. The disadvantage of this scenario is that the quantity of oil moving across the dock is increased by 40%, compared to Scenario #1, with an associated increase in the risk of spillage. This scenario may also not be physically possible because the CAPECO facility in Puerto Rico may not have sufficient tankage to accept the quantity of Yombo necessary to process the CAPECO fuel oil to the required PREPA specification.

4. The final alternative is to transport the CAPECO fuel oil to St. Eustatius on a foreign-flag vessel. At St. Eustatius the product would be discharged in the facility, processed in tank with the Yombo crude oil with the resultant product subsequently loaded on the foreign-flag vessel for transportation back to PREPA's dock in San Juan. This scenario has the dis- advantage of resulting in a movement of 100,000 barrels of heavy oil currently located safely on shore in the CAPECO Refinery in San Juan across the dock to the vessel, through San Juan Harbor and the neighboring waters to St. Eustatius, and then back to San Juan as
a component of a resultant product. The additional handling and transportation of the CAPECO viscous dirty product carries with it the increased potential for adverse environmental impact.

The specifications of the oil located in San Juan, Puerto Rico (CAPECO), St. Eustatius (Yombo) and the resultant product (PREPA) are set forth below.



Gravity, API @ 60 deg. F D1298 10.0 ---

Flash Point, P.M.C.C. D93 200 Degrees F

Sulfur Content D4294 2.25 WT%

Saybolt Furol Viscosity D2161 348 s.f.s.@122F

Kinematic Viscosity D445 737.9 CST @ 122F

Pour Point D97 45 Degree F

Water & Sediment D1796 0.05 VOL%

Heat of Combustion (Net) CALC. 17 195 B.T.U./lbs.

Heat of Combustion (Gross) CALC. 18 200 B.T.U./lbs.

N-Heptanes Insolubles D3279 8.9 WT%

Vanadium AA 239 PPM

Sodium & Potassium AA 5.4 PPM

Calcium AA 3 PPM



Gravity, A.P.I., Average ASTM-D-1298/90 16.3 Deg.

Flash Point, PMCC, ASTM-D-93/90 176.0 Deg.F Corrected to 760 mmHg

Kinematic Viscosity @ ASTM-D-445/88 662 cSt 122 Degrees F, Average

Saybolt Furol Seconds ASTM-D-2161/87 312 Secs Viscosity @ 122 Deg. F

Pour Point (Upper) ASTM-D-97/87 32/0 DegF/C

Sulfur Content, Average ASTM-D-4294/90 0.35 %M/M

Water & Sediment ASTM-D-1796/90 0.45 %Vol

Ash Content (Sample Wt. ASTM-D-482/87 0.01 %Wt 24.1371 g)


Quality Specifications

Sulphur, Wt. Pct. 1.50 max

Asphaltene Content, Wt. Pct. 8.00 max

Pour Point, Deg. F 75 max

Flash Point, Deg. F 150 min

Viscosity, SSF @ 122 Deg. F 100 min/350 max

API, Deg. F 8.0 min/18.0 max

BSW, Pct. Vol. 1.00 max

Vanadium, ppm 150 max

Ash, Wt. Pct. 0.10 max

Sodium & Potassium, ppm 25 max


Whether the transportation of fuel oil as proposed in the above scenarios is in violation of 46 U.S.C. App. ? 883.


Title 46, United States Code Appendix, ? 883 (the merchandise coastwise law often called the "Jones Act") prohibits the transportation of merchandise between United States coastwise
points, either directly or via a foreign port, or for any part of the transportation, in any vessel other than a vessel built in and documented under the laws of the United States and owned by persons who are citizens of the United States.

In interpreting ? 883, Customs has ruled that a point in United States territorial waters is a point in the United States embraced within the coastwise laws. The territorial waters of the United States consist of the territorial sea, defined as the belt, 3 nautical miles wide, seaward of the territorial sea baseline, and to points located in internal waters, landward of the territorial sea baseline, in cases where the baseline and the coastline differ. Furthermore, Customs has long-held ? 883 applicable to Puerto Rico pursuant 48 U.S.C. ? 744 and 46 U.S.C. App. ? 877.

Section 4.80b(a), Customs Regulations, provides, in part, that:

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. However, merchandise is not transported coastwise if at an intermediate port or place other than a coastwise point (that is, at a foreign port or place, or at a port or place in a territory or posses- sion of the U.S. not subject to the coastwise laws), it is manufactured or processed into a new and different pro- duct, and the new and different product thereafter is transported to a coastwise point.

In applying ? 4.80b(a), Customs has held that merchandise manufactured or processed into a new and different product must be landed and processed at an intermediate port or place other than a coastwise point. The manufacturing or processing may not take place on board a vessel. In regard to the processing of fuel oil, pursuant to T.D. 91-32 published in the Federal Register on April 10, 1991 (56 FR 14467) prior to reaching a determination that a new and different product has in fact been created for purposes of ? 4.80b(a), the procedures and specific data of such operations should be submitted by the party seeking such a determination. Customs will then review the data and make the necessary determination which will form the basis for a decision regarding any possible violation of ? 883.

Regardless of whether the processing involved in this case creates a new and different product for purposes of 19 CFR ? 4.80b(a), we note at the outset that Scenario Nos. 1 and 3 would constitute violations of the coastwise laws. In Scenario #1 the processing would take place on board the vessel, and in both scenarios the resultant PREPA product would be transported between two coastwise points (i.e., between points 400 yards apart in San Juan Harbor) without the processing having taken place at an intermediate foreign port or place. Accordingly, both scenarios run contra to 19 CFR ? 4.80a(b).

Whether or not a new and different product has been created by the processing in question is also not critical with regard to Scenario #2. Although the processing takes place on board the vessel, there is no transportation between coastwise points inasmuch as the vessel is remaining stationary and merely pumping the resultant product ashore. Consequently, Scenario #2 would be in accord with 46 U.S.C. App. ? 883.

In regard to Scenario #4, our review of the specifications of this particular processing is critical in determining whether a violation of 46 U.S.C. App. ? 883 would occur. To that end we note that although the gauger report for the CAPECO fuel oil lists the product as a "No. 6 fuel oil", our review of the specifications shows that the fuel oil does not meet the specifications for any ASTM specification fuel oil, including No. 6 fuel oil. Rather, the specifications show that the product is a low quality residual fuel oil. Since the CAPECO fuel oil is of U.S. origin, its specifications were compared to the specifications of the resultant product (the PREPA crude oil/fuel oil blend), which will be transported to Puerto Rico. We emphasize that the submitted gauger reports are only represen- tative of the products, therefore, the specifications of the actual shipments will probably vary. Further, the specification ranges given for the finished blend are relatively wide, which may allow for a significant variance in the specifications of the resultant product transported to the United States.

Although no ranges are provided for the fuel oil (an actual gauger report is provided which is typical of the fuel oils which will be exported and blended), however, because of the apparent crudeness of the fuel oil, it is almost certain that the specifications will vary with each shipment. Therefore, the issuance of this ruling may cover a broad range of fuel oils and blends. In comparing the specifications of the blend and the residual oil, we note that because of the broad specification ranges, the specifications of the blends and fuel oil may intersect at various key specifications, (i.e., viscosity, flash point). Therefore, the possibility exists that the blends and the exported U.S. fuel oil may be substantially similar. In the instances where the key specifications intersect or are similar, it is our opinion that the offshore blending process would not
be sufficient to create a "new and different product" within the meaning of 19 CFR ? 4.80b(a). Consequently, the proposed transportation of the resultant product by a foreign-flag vessel to Puerto Rico as described in Scenario #4 would constitute a violation of 46 U.S.C. App. ? 883.


With the exception of Scenario #2, the proposed transportation of fuel oil as described above is in violation of 46 U.S.C. App. ? 883.


Arthur P. Schifflin

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