H321332

U.S. Department of Homeland Security Washington, DC 20229 U.S. Customs and Border Protection HQ H321332 February 7, 2023 OT:RR:BSTC:CCR H321332 TNA Steven C. Sparling K&L Gates, LLP 1601 K Street, NW Washington, DC 20006 RE: 46 U.S.C. § 55102; 19 C.F.R. § 4.80b(a); New and Different Product; LNG Bunker Fuel Dear Mr. Sparling: This is in response to your letter of October 12, 2021, which requests a ruling on behalf of [] (“the Company”). This letter requested a determination as to whether Liquified Natural Gas (“LNG”) for use as marine bunker fuel constitutes a new and different product from the pipeline natural gas (“Pipeline Feed Gas”) from which it is produced, and whether the LNG’s proposed transportation by a non-coastwise-qualified vessel would constitute a violation of 46 U.S.C. § 55102. Following a September 29, 2022, meeting with CBP, the Company submitted supplemental information and arguments on October 24, 2022. The Company has also requested that confidential treatment be accorded to certain information submitted in connection with this ruling request. In consideration of the request and the sufficient justification presented pursuant to 19 C.F.R. § 177.2(b)(7), this office will not identify any business confidential information provided to U.S. Customs and Border Protection (“CBP”). Our decision follows. FACTS: The Company is engaged in bunkering activities that produce bunker fuel for marine vessels. Bunker fuel is defined as “any of various fuel oils used especially on ships.” It is a broad category that includes marine gas oil, marine diesel oil, intermediate fuel oil, marine fuel oil and heavy fuel oil. The Company is currently evaluating transporting LNG Bunker Fuel produced in Mexico, manufactured from U.S.-origin pipeline feed gas, that will be delivered to vessels in ports located in the United States. It will be delivered by foreign-flagged bunkering vessels. The Company anticipates this activity beginning in late 2024. The Pipeline Feed Gas used to produce the LNG Bunker Fuel will be delivered to Energia Costa Azul (“ECA”), an LNG terminal in Mexico, via pipeline. It will be injected into pipelines in various southern states of the United States and transported, in a gaseous state, via pipeline to the LNG terminal in Baja California, Mexico. Once in Mexico, it will be manufactured into LNG Bunker Fuel. The LNG Bunker Fuel will then be transported, on board a foreign-flagged, non-coastwise-qualified vessel to the United States. The point of lading will not be the same as the point of return of the fuel, as the gas will be injected in a pipeline in the south and then shipped to the west coast. The chemical composition of Pipeline Feed Gas varies according to its source. However, LNG Bunker Fuel is subject to the standards set forth by the International Organization for Standardization (“ISO”), in particular ISO 23306:2020, which specifies the quality requirements for LNG used as marine fuel. These are more stringent than for LNG generally, and are different than for pipeline gas. Specifically, ISO 23306:2020 limits the nitrogen level in LNG to a maximum of 1.0 (mol), as well as limiting the Net Caloric Value and methane number of marine LNG. See ISO 23306:2020 Sections 4.1 and 6. The Company notes that the ISO’s restrictions are due to specific constraints in the design of marine engines and states that compounds that are harmful for marine applications are removed or reduced to very low trace levels in its production of the subject LNG Bunker Fuel. Without this process, the Company contends, the LNG is not useable as marine fuel because of the corrosion and freezing the removed components would cause. The Company’s liquefaction process, which turns the Pipeline Feed Gas into the subject Bunker Fuel, is summarized as: []. During this process, harmful compounds are removed or reduced to very low trace levels. The Company specifically contends that the Pipeline Feed Gas is altered and chemically modified through the liquefaction process, such that it will be turned to a marine bunker fuel that qualifies for classification under ISO 23306. In both the September 29, 2022, meeting with CBP and its October 24, 2022, supplemental submission, the Company notes that the Pipe Feed Gas goes through several rounds of transformations that remove a number of compounds which are themselves different products, as well as being valuable and independently marketable by-products. In addition, the Company notes that the feed natural gas could not even be liquified without this process. As such, the Company states that the LNG that is produced this way is a new and different product whose regasification would produce natural gas with a different chemical composition than the Pipeline Feed Gas that was first used to produce the LNG. ISSUE: Whether, based on the product specifications provided, the proposed liquefaction operation would result in the creation of a “new and different product” within the meaning of 19 C.F.R. § 4.80b(a), such that the proposed transportation by a non-coastwise-qualified vessel would not be in violation of 46 U.S.C. § 55102. LAW AND ANALYSIS: Pursuant to 46 U.S.C. § 55102 (“the Jones Act”), 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 has a coastwise endorsement. 46 U.S.C. § 55102 (emphasis added). The CBP regulations promulgated under the authority of 46 U.S.C. § 55102(a), provide 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, regardless of the origin or ultimate destination of the merchandise.” 19 C.F.R. § 4.80b(a). However, Customs regulations provide an exception to 46 U.S.C. § 55102, if a “new and different product” is being transported. Specifically, 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. 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 possession of the United States not subject to the coastwise laws), it is manufactured or processed into a new and different product, and the new and different product thereafter is transported to a coastwise point. 19 C.F.R. § 4.80b(a) (emphasis added). Here, while the feed gas will first transit through the United States via pipeline, it will then return to the United States via vessel. The Jones Act applies when “any part of the transportation of merchandise” occurs by water or land and water. Here, the fuel will be transported in part by water and we must determine if a violation would occur in this instance. See e.g., HQ H253080 (July 15, 2014) (“Insofar as a non-coastwise-qualified vessel will transport the subject merchandise for a part of the transportation between U.S. points to which the coastwise laws apply, via a foreign port, the transportation as described in scenario one violates 46 U.S.C. § 55102.”). We note that the Company only seeks confirmation that a new and different product is being transported and concedes to all pertinent elements of the Jones Act. Prior CBP rulings that examine whether fuel oil qualifies as a new and different product have overwhelmingly focused on fuel oil blending operations. In these rulings, various types of fuel oil and other components have been transported to marine terminals or other locations where the fuel oil blending operations combine the various types of fuel oil and other components toget

Pursuant to 46 U.S.C. § 55102 (“the Jones Act”), 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 has a coastwise endorsement. 46 U.S.C. § 55102 (emphasis added). The CBP regulations promulgated under the authority of 46 U.S.C. § 55102(a), provide 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, regardless of the origin or ultimate destination of the merchandise.” 19 C.F.R. § 4.80b(a). However, Customs regulations provide an exception to 46 U.S.C. § 55102, if a “new and different product” is being transported. Specifically, 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. 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 possession of the United States not subject to the coastwise laws), it is manufactured or processed into a new and different product, and the new and different product thereafter is transported to a coastwise point. 19 C.F.R. § 4.80b(a) (emphasis added).Here, while the feed gas will first transit through the United States via pipeline, it will then return to the United States via vessel. The Jones Act applies when “any part of the transportation of merchandise” occurs by water or land and water. Here, the fuel will be transported in part by water and we must determine if a violation would occur in this instance. See e.g., HQ H2530