By Marianna Parraga, Elida Moreno and Curtis Williams
PANAMA CITY/HOUSTON (Reuters) – The Panama Canal is aiming to regain ship traffic carrying U.S. liquids to Asia as demand in that market rises and a new reservation system allows shippers to secure slots, after a decline of 65 % in the throughput of its second channel. The most important segment, the Panama Canal Authority told Reuters.
A US LNG switch to Europe in the wake of Russia’s invasion of Ukraine, combined with long wait times and expensive fees for transit through Panama due to a severe drought, has kept many LNG ships out of the canal.
Many gas exporters continue to take longer routes through South America even after the waterways authority lifted restrictions this year. The canal is the shortest route to Asia for U.S. gas exporters, whose sales to Japan, China, South Korea and India have grown significantly over the past decade.
“In the case of LNG, we have lost 65% of the traffic, that is the traffic that now goes through Cape Horn, compared to what we had last year, two years ago,” Canal Administrator Ricaurte Vazquez said. in an interview in Panama City.
Europe’s strong interest in American LNG and delays in approving new LNG projects in the United States have been the main drivers for the switch, he added, although the canal’s drought-related restrictions also played a key role played, according to shippers.
“The challenges of the last drought were very visible to all,” said Anatol Feygin, executive vice president at Cheniere Energy (NYSE:), the largest U.S. LNG producer.
Because the Panama Canal Authority charges a flat fee per passage, it may be more convenient for U.S. producers to take longer routes to Asia depending on global LNG prices, contract delivery terms and seasonal demand.
“Sometimes people forget that going through the canal … is not a free shortcut,” Feygin said, referring to transit costs. “Economically, the solution of going around the Cape is not far from the economic solution of going through the canal.”
But a recovery in Asian LNG demand, which is likely to continue next year, could require more shipments through the canal.
“We believe LNG demand growth will be driven by Asia,” Feygin added, referring to China, South Asia and Southeast Asia. “And we believe U.S. Gulf Coast volumes will remain the largest export hub in the world.”
MORE PASSAGES NEEDED
A new reservation system and lower costs helped the canal’s net revenues rise 9.5% to $3.45 billion in the fiscal year that ended in September, despite the drought.
But commodity producers believe the canal administration still has room to arrange more transit of LNG and LPG ships. The parties have been in contact since last year to discuss proposals.
Panama now offers two transit slots per day for LNG ships, but a long-term reservation system starting in January will allow producers to reserve slots up to a year in advance.
The first auction of this type, completed this month, raised $394 million and will account for 40% of all transit through the largest locks by 2025, administrator Vazquez said.
Shorter wait times and reserving a limited number of slots for ships arriving at the canal without reservations will allow Panama to better handle arrivals. And some other improvement measures are being discussed, including some to prepare for dry years, Vazquez added.
“It (the canal) still has some limitations that we are working on, such as the fact that LNG ships do not have overnight transit options through the new locks,” Feygin said.
The canal, which monitors the expansion of global LNG fleets and the status of new U.S. LNG projects, expects larger LNG ships, including floating storage units that deliver LNG to land-based facilities, to pass through the largest locks over the next 18 months will sail from Panama. .
