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How Panama Canal expansion will affect global LNG trade

90% of the world's LNG tankers will now be able to use the Panama Canal. Expansion means reduced transit times and costs.





Updated on 12 Jul 2016 09:27 GMT

The newly expanded Panama Canal will now be able to accommodate 90% of the world's current liquefied natural gas (LNG) tankers.

Previously only 6% of the global fleet - 30 of the smallest LNG tankers - could transit the canal. Now, only the 45 largest LNG vessels, 4.5-Bcf to 5.7-Bcf capacity Q-Flex and Q-Max tankers used for exports from Qatar, will not be able to use the canal.

The expansion has significant implications for LNG trade. Not only will it reduce travel time and transportation costs but it will allow LNG shipments from the U.S. Gulf Coast to access key markets in Asia. LNG from the US Gulf Coast will now be able to access the Pacific Markets and Japan, South Korea, China, and Taiwan, four countries that account for almost two-thirds of global LNG imports.

Transit times from the U.S. Gulf will now reduced to 20 days to the Asian markets and a mere 8-9 days for South American Chilean regasification terminals and 5 days to prospective terminals in Colombia and Ecuador.

In addition to shorter transit times, using the Panama Canal will also reduce costs. The newly introduced toll structure, designed to encourage additional round trip LNG traffic, will cost about 9% to 12% of the round-trip voyage cost to countries in northern Asia.

Based on IHS data, the round trip voyage cost for ships traveling from the U.S. Gulf Coast and transiting the Panama Canal to countries in northern Asia is estimated to be $0.30/MMBtu to $0.80/MMBtu lower than transiting through the Suez Canal and $0.20/MMBtu to $0.70/MMBtu lower than travelling around the tip of Africa.

Currently, about 9.2 billion cubic feet per day (Bcf/d) of U.S. natural gas liquefaction capacity is either in operation or under construction in the United States. Almost half of this capacity has long-term (20 years) contracts with markets in Asia whilst 2.9 Bcf/d has been contracted long-term to various countries under flexibility of destination clauses that allows them to be taken to any LNG market in the world.

As a result, it is expected that by 2020, the United States will be the world's third-largest LNG producer, after Australia and Qatar, and should all these currently contracted volumes transit the Panama Canal, EIA estimates that LNG traffic through the Canal could reach more than 550 vessels annually by 2021.






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