After the $5 billion-plus expansion of the Panama Canal is dedicated this Sunday, June 26, the first “New Panamax” vessel scheduled to pass through the canal’s new, longer, wider locks will be the Lycaste Peace, a Very Large Gas Carrier (VLGC) that is transporting propane from Enterprise Products Partners’ Houston Ship Channel export terminal to Tokyo Bay in Japan. What remains to be seen, though, is how many other supersized vessels carrying propane, liquefied natural gas (LNG) or other hydrocarbons will follow, and how soon. Today, we mark the formal opening of the newly enlarged Atlantic-Pacific short-cut with a look both at the game-changing potential of the expanded canal and the realities of today’s energy and shipping markets.
The international energy trade has been shifting toward larger and larger sea-going vessels, seeking to maximize economies of scale and minimize shipping costs. That shift has been stymied somewhat, though, by the Panama Canal’s inability—until now—to handle the vast majority of the world’s LNG and liquefied petroleum gas (LPG) carriers. As we said in our recent Run Through the Jungle blog series and Here She Comes, Full Blast blog, until new, larger locks were built and other improvements were made along the canal, the manmade waterway was limited to vessels no larger than 965 feet long and 106 feet wide; and their drafts (or depth below water level) were capped at just under 40 feet. (Ships up to this size and draft are known as “Panamax” vessels.) When the new canal locks open for business this weekend, the “New Panamax” dimensional limits of ships using the canal increases to 1,200 feet in length, 160 feet in width, and 50 feet of draft. That’s a game-changer for both LNG and LPG. Until now, less than 10% of the world’s 400-ship fleet of LNG carriers can use the canal, but starting on Sunday more than 90% will be able to. (In fact, the only LNG carriers that will not be able to use the canal because of their width are the Q-Flex (164 feet wide) and Q-Max (180 feet wide), vessels whose use was pioneered by Qatar Gas to move staggering volumes of LNG.) The expanded canal also significantly expands the number of ships that can move propane, butanes or LPG (which is mostly propane with some butanes) through the canal. The VLGC (which can carry between 375 MBbl and 550 MBbl, depending on the model) is the LPG-mover of choice, especially for serving mega-markets like Japan (where, as we said, the first VLGC to ply the expanded canal is headed). Only one-fifth of the 200 or so VLGCs now afloat could fit through the old Panama Canal, but now every VLGC on the planet (including the first through-the-locks Lycaste Peace—photo below—which is leased to Japanese LPG trader Astomos Energy) can fit through the expanded waterway.