The Panama Canal is working to restore its liquefied natural gas (LNG) traffic to Asia, following a significant 65% decline in shipments. This decline is attributed to several factors, including:
Shift in LNG Exports: Following Russia’s invasion of Ukraine, U.S. LNG exports shifted focus to Europe, leading to reduced traffic through the canal. Long waiting times and high transit fees, exacerbated by severe drought conditions, have further deterred LNG vessels.
Alternative Routes: Many LNG carriers are now opting for longer routes around Cape Horn, even after restrictions on the canal were lifted, as the canal remains the shortest route for U.S. gas exports to Asian markets like Japan, China, South Korea, and India.
Canal Authority Insights: Ricaurte Vazquez, the canal’s administrator, noted that LNG traffic has drastically decreased, with many vessels now bypassing the canal for longer routes. The authority is implementing a new reservation system to allow shippers to secure transit slots in advance, aiming to attract more LNG traffic.
Economic Considerations: Transit fees through the canal can be significant, leading some exporters to choose longer routes when economic conditions favor that option. Anatol Feygin from Cheniere Energy emphasized that the economics of both routes can be comparable.
Future Demand: As Asian demand for LNG is expected to rise, particularly in China and Southeast Asia, there is potential for increased shipments through the canal. The canal’s administration anticipates that larger LNG vessels will begin transiting through its locks within the next 18 months.
New Measures: The Panama Canal Authority has introduced a long-term reservation system that will allow for better management of LNG traffic and potentially improve waiting times. The first auction for these slots raised $394 million, accounting for a significant portion of future transits.
Operational Constraints: Despite improvements, the canal still faces operational challenges, such as restrictions on night-time transits for LNG carriers, which the administration is working to address.