After first restricting vessel traffic in July, the Panama Canal Authority further reduced traffic this month because of low water levels following poor rainfall. This October was the driest since Panama began tracking rainfall in 1950. Daily vessel traffic is now restricted to 18 per day, which is half of what it was last year and restrictions have been announced through February, though with a strong El Nino this year likely bringing warm, dry conditions to the area, restrictions are likely to contiue much longer. About half of U.S. LNG heading to the Asia Pacific region typically travels via the Panama Canal. The restrictions will add time to the voyage to Asia and LNG tankers will either need to wait for a turn to move through the Panama Canal, pay to jump the line, or take a longer route through the Suez Canal or around the Cape of Good Hope. Taking an alternate route can add more than 10 days one way in travel time, depending on the exact end point and route taken, so any of these options increase shipping costs to Asia for U.S. LNG. So far this month, ship tracking data indicates only four vessels opted to use the Panama Canal, which is about 30% of the vessels headed to Asia. These increased costs erode most, if not all of Asia’s current price premium advantage over Europe.
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The Long Way Around - For U.S. Exporters, Avoiding Panama, Suez Canals Comes at a Cost
Two maritime passages long regarded as essential shortcuts in the complex world of commodity shipping have become a lot more challenging to navigate. Transiting the Red Sea has turned potentially deadly because of geopolitical tensions, while severe drought has critically reduced operations at the Panama Canal. Combined, these issues are being felt across the energy industry, impacting U.S. and foreign producers and shippers, redrawing trade flows, extending voyage times and, ultimately, raising transportation costs. In today’s RBN blog, we’ll examine and quantify the extra time and costs that shippers of U.S. crude and refined products must bear when using alternative routes.
I Wish It Would Rain - Mayhem in LPG Export Market as Drought Cuts Panama Canal Traffic
U.S. Gulf Coast LPG exports are sky-high, averaging just under 2 MMb/d in October, with nearly two-thirds of those volumes bound for Asia — a straight-shot trip once a Very Large Gas Carrier (VLGC) has passed through the Panama Canal. But an unprecedented dry spell has left the canal’s operators — and LPG shippers — in a real bind. The century-old maritime shortcut, which was expanded just a few years ago to accommodate more and larger vessels, uses massive amounts of fresh water, and to help conserve what’s left in the system’s main reservoir, the Panama Canal Authority (PCA) is ratcheting down how many ships can pass through each day. Worse yet, VLGCs are a low priority compared to other, larger vessels that pay higher tolls. That means that far fewer Asia-bound LPG ships will be using the Panama Canal for who knows how long. Instead, many shippers will need to make far longer, more costly trips through the Suez Canal or around the southern tip of Africa. In today’s RBN blog, we discuss what LPG shippers in particular are up against.
Canal Street Blues - Low Panama Canal Water Levels Mean Big Headaches for LNG Exporters
The Panama Canal expansion completed in June 2016 was expected to allow much larger LNG tankers to move product from Sabine Pass LNG and other Gulf Coast export terminals through the canal to Asian and Latin American customers. But water levels at Gatun Lake, which provides the fresh water needed to operate the canal’s locks, have been well below normal in recent years, limiting opportunities to use the canal and complicating plans to ramp up LNG flows through it. In today’s RBN blog, we look at the challenges of moving LNG through the Panama Canal, how access to the waterway has been affected by drought and climate conditions over the past decade, and the impact on the LNG market.
