You Needed Me - The Panama Canal Expansion Has Helped U.S. Exports, But Will It Be Enough?

The new, larger locks along the Panama Canal have been in operation for almost two years now, enabling the passage of larger vessels between the Atlantic and the Pacific. The timing couldn’t have been better — when the expanded canal locks came online in June 2016, exports of U.S. LPG, crude oil, gasoline and diesel were about to take off, and Cheniere Energy had only recently started shipping out LNG from its Sabine Pass export terminal in Louisiana, with Asian markets in its sights. Hydrocarbon-related transits through the canal soared through the second half of 2016, in 2017 and so far in 2018. But the gains are mostly tied to LPG and LNG — even the expanded canal isn’t big enough for the Very Large Crude Carriers (VLCCs) favored for Gulf Coast-to-Asia crude shipments, or for fully laden Suezmax-class vessels. And there already are indications that the canal’s capacity may not be sufficient to meet future LNG needs. Today, we consider the expanded canal’s current and future role in facilitating U.S. hydrocarbon exports.

As we said in our Run Through the Jungle blog series a couple of years back, the “old” Panama Canal was off-limits to vessels larger than 965 feet long and 106 feet wide; and ship 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 — see Figure 1.) When the new canal locks opened for business, the dimensional limits of ships using the canal increased to 1,200 feet in length, 160 feet in width, and nearly 50 feet of draft. (These larger vessels are classified as “Neopanamax.”)

The larger locks have been a game-changer for LPG and LNG shippers in particular. Before the canal expansion, less than one-fifth of the 250-plus Very Large Gas Carriers (VLGCs) now afloat could fit through, but the expanded canal can accommodate each and every one. [VLGCs, which can carry between 375 Mbbl and 550 Mbbl (depending on the model), are the LPG-movers of choice, especially for serving mega-markets like Japan and China (the two largest overseas markets for U.S.-sourced LPG).] An even smaller share of the world’s 460-plus LNG carriers could fit through the old canal — less than 10% — but now more than 90% can. [The only LNG carriers that cannot use the canal now 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.]

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