EIA: expanded Panama Canal speeds up US LNG delivery

The newly expanded Panama Canal that opened its locks earlier this week will be able to accommodate 90 percent of the world’s current LNG tankers with up to 3.9 billion cubic feet carrying capacity.

According to the U.S. Energy Information Administration, prior to the expansion, only 6 percent of the global fleet or 30 of the smallest tankers with cargo capacity of up to 0.7 bcf could transit the canal.

The new locks, that enable wider vessels, 180 feet across, to transit the canal, will have “significant implications for LNG trade, reducing travel time and transportation costs for LNG shipments from the U.S. Gulf Coast to key markets in Asia and providing additional access to previously regionalized LNG markets.”

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 expanded canal.

The voyage time for LNG from the U.S Gulf Coast to markets in northern Asia such as Japan, South Korea, China and Taiwan, that make up almost two-thirds of global imports, will be significantly reduced.

The voyage to Japan has been cut to 20 days from 34 days it took to travel around the southern tip of Africa or 31 days if transiting through the Suez Canal, EIA said.

Exports from the U.S. U.S. Gulf Coast to South America will also be shortened from 20 days to 8-9 days to Chilean regasification terminals, and from 25 days to 5 days to prospective terminals in Colombia and Ecuador.

The transportation costs will also be reduced by using the Panama Canal. The Panama Canal Authority approved a tolling structure for LNG carriers in 2015, noting that tolls will be based on cubic meters.

According to the EIA report, the transit costs through the Panama Canal for an average 3.5 bcf LNG carrier are estimated at $0.20 per million British thermal units (MMBtu) for a round-trip voyage, representing about 9 percent to 12 percent of the round-trip voyage cost to countries in northern Asia.

However, exports to markets in India and Pakistan will not be affected by the expanded Panama Canal as voyages and the transportation costs would take longer and cost more than the alternative routes, either the Suez Canal or around the southern tip of Africa.

Currently, about 9.2 billion cubic feet per day of U.S. natural gas liquefaction capacity is either in operation or under construction in the United States.

EIA adds that by 2020, the United States is set to become the world’s third-largest LNG producer, after Australia and Qatar. More than 4.0 bcf/d of U.S. liquefaction capacity has long-term (20 years) contracts with markets in Asia, of which 3.2 bcf/d is contracted to Japan, South Korea, and Indonesia.

An additional 2.9 bcf/d of U.S. liquefaction capacity currently under construction has been contracted long-term to various countries. Flexibility in destination clauses allows these contracted volumes to be taken to any LNG market in the world.

Assuming all contracted volumes transit the Panama Canal, EIA estimates that LNG traffic through the Canal could reach more than 550 vessels annually, or 1-2 vessels per day, by 2021.