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BUNKER INDEX :: Price Index, News and Directory Information for the Marine Fuel Industry
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Expansion of the Panama Canal may reduce bunker prices

Decrease in oil costs could lower the price of marine fuel within the next few months.

Updated on 23 Jun 2016 16:13 GMT

The expansion of the Panama Canal is set to open for the inaugural voyage on Sunday, 26th June. The completed expansion includes a third set of locks that will allow more vessels to travel through the canal at once while also accommodating larger vessels than before.

Expanded locks in the Panama Canal

Since the creation of the original Panama Canal locks, ships have been growing in size. The original locks were built only to handle up to 5,000 TEU vessels, but the new locks are said to accommodate vessels up to 14,000 TEU.

These larger locks will make transport easier for a number of companies who previously had to resort to using ship-to-ship transfers in order to get their cargo across the canal to another vessel on the opposite side. With vessel size restrictions becoming much more accommodating, the Panama Canal is set to open up larger trade routes between the US East Coast and Asia or South America.

Although these locks will allow larger vessels, they still cannot grant access to the very large 20,000-TEU vessels.

Petroleum, LNG and crude oil passage through Panama

Crude oil and fuel products are some of the main commodities that are shipped through the Panama Canal currently, but the stock of each is expected to rise with the new expansion.

Of these three commodities, crude oil is expected to see the least amount of cargo increases, as the tankers carrying crude oil are generally larger than will be allowed in the canal throughway. The slight increase in crude oil passing through Panama could cause barrel prices to reduce slightly.

Quantities of LNG and other petroleum products passing through the canal are estimated to increase more than any other type of product. Previously, most LNG tankers exceeded the maximum dimensions allowed in the locks, but the new larger locks will allow standard LNG carriers to pass through without doing any time-consuming and costly ship-to-ship transfers.

Petroleum shipments, which account for most of the liquid freight passing through the Panama Canal, will be able to increase as well with the addition of larger ships. Previously, shipments were made with small vessels to accommodate the size requirements, but since the new additions have been opened, shipping companies can plan to send petroleum fuels in larger quantities on larger vessels.

Possible effects on bunker fuel prices

Shipping logistics are not the only thing set to change with the expansion project. It is estimated that the cost of oil and petroleum products will decrease slightly due to the lower cost of sending them through the canal and the ability to capitalize on economies of scale with larger shipments.

This reduction in oil costs could lead to lower bunker fuel prices that might come into effect over the next few months after the opening of the canal locks. While the reduction in prices will be slight, it could help to lower to cost of shipments made in that part of the world.

Additionally, LNG fuels will be able to be transported through the Panama Canal, leading to a reduction in the cost of transporting these fuels around the region. LNG storage facilities are said to be part of the next phase of construction in Panama, which may bring about a rise in LNG-fuelled vessels using this waterway as well.

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