On Monday, September 3, 2007, dignitaries and thousands of Panamanian citizens watched a huge explosion level a hill near Paraiso, a village north of Panama City. That day launched work on a project that would eventually cost more than $6 billion (U.S.) to double the capacity of the Panama Canal and allow for the passage of longer and wider ships. Nearly nine years later on June 26, 2016, the expansion is finally scheduled to be open for business. The new canal capacity will be a major event in global energy markets, especially for growing volumes of U.S. natural gas, liquified petroleum gas (LPG) and petroleum product exports. In honor of this historic development, RBN will take you there! Rusty will be traversing the canal this Thursday, April 14th and will have the skinny on what is happening in Panama right now, with pictures to show for it. In today’s blog we set the stage for our voyage across the Panamanian Isthmus.
The Panama Canal expansion has been a frequent topic in the RBN blogosphere. We did a primer on the subject (see Panama Tailored to Fit Larger Vessels) a few years back and subsequently have reviewed the impact of the expansion on the full range of hydrocarbon markets. In Courtesy of the Red, White and Blue we saw how the shipping distance from the U.S. Gulf Coast to Asia for large LNG tankers will drop from 16,000 to 9,000 miles when the canal expansion opens, cutting freight costs by more than 40%. Stayin’ Afloat with the LP Gees examined how the largest LPG vessels carrying propane and butane (very large gas carriers, VLGCS) cannot fit through the Panama Canal today, but will be able to after the expansion goes into service. In Rock the Boat Don’t Rock the Boat—Jones Act Vessels Through the Panama Canal? we looked at the possibility of moving US crude from the Gulf Coast to the West Coast either via the Panama Canal or the Transpanama pipeline (TPP). And in A Man, A Plan, An Expanded Panama Canal— Cutting Travel Times For LNG And LPG-Laden Ships we examined the benefits that canal expansion offers to LNG and LPG exports. Today we consider what the upcoming expansion does for the Canal’s capabilities, and what the new capacity will mean for energy markets.
The Expansion Project
The Panama Canal Expansion Project, also known as the Third Set of Locks Project, does two things. First it creates a new lane of traffic by adding a new set of locks at both the Atlantic end and the Pacific end of the canal. And second, because these locks are bigger than the existing locks built 100 years ago, larger ships will be able to traverse the canal. You may wonder how building new facilities at the ends of the canal could add such new capacity to the entire 50-mile length of the canal. What about all those miles of canal in between? Well, it is possible to add capacity to the whole canal with only new infrastructure at either end (and just a bit of widening in between) because the Panama Canal is not really a canal, at least in the traditional definition of the term. A traditional canal (like today’s Suez Canal or the U.S. Erie Canal built in the 1800s) is more like a big ditch. Not so the Panama. It is mostly a lake - Gatun Lake – with rivers fed by, and feeding the lake. Designing the canal to use this man-made lake is what made the original canal feasible in the first place, and what makes the canal expansion economically viable today.
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