In Freight News 04/07/2016
Source: USA Today
Exports of U.S. liquefied natural gas stand to benefit substantially from the $5.4 billion expansion of the Panama Canal, which will lead to much shorter travel time and much lower costs for shipments from the Gulf Coast to big markets in Asia and South America.
Wider and deeper navigation channels and larger locks mean the canal can accommodate 90% of the world’s LNG tankers, including vessels that hold as much as 3.9 billion cubic feet of the fuel, according to a new report from the U.S. Energy Information Administration.
Before the facilities opened last week, the canal could handle only much smaller ships, which combined account for just 6% of the global LNG fleet.
Still, the canal’s impact won’t be felt immediately for an export industry that’s only months old, having begun in February with a shipment by Cheniere Energy to Brazil.
Low oil prices stiffen competition for U.S. LNG shippers as most LNG contracts in Asia are based on the price of oil rather than on cheap American natural gas.
Sluggish demand for LNG in Asia makes lining up contracts that much more difficult.
The outlook is likely to brighten for the domestic industry once oil prices rise, demand for LNG picks up and more LNG export terminals come online.
In fact, EIA estimates that U.S. LNG traffic through the canal could exceed 550 vessels annually, or one to two vessels per day, by 2021.
“I think the question for people marketing LNG is what is the price going to be in 2017 and 2018 and 2019,” said David Goldwyn, the president of the consulting firm Goldwyn Global Strategies and a former special envoy for international energy affairs at the U.S. Department of State.
“Right now, those with unbooked capacity are having a hard time marketing cargoes because of the difference in prices, but if we dial back on this in three or six months, and if (oil) prices kick up another $10, I guess the phone starts ringing,” Goldwyn said.
Victoria Zaretskaya, the EIA analyst who wrote the agency’s report, agreed. Sending U.S. LNG to Japan on the spot market, for example, would require an oil price of $60 per barrel to make it competitive for American shippers, she said in an email comment.
By contrast, the futures price for WTI, the U.S. benchmark for crude oil, closed at $48.98 per barrel Friday.
One of the greatest opportunities for U.S. energy commodities in the bigger canal involves liquid petroleum gas, primarily propane used for heating and cooking, Goldwyn said in an interview.
“Japan and China are the number one and two destinations for LPG. Those shipments have been increasing anyway, and now you’re going to be able to get much bigger ships going there,” he said.
The same can’t be said of crude oil, which is typically loaded on “very large” and “ultra-large” carriers that are too bulky to transit the canal fully laden, even using the new locks.
“It’s really not a crude oil story at all,” Goldwyn said.
But it’s bound to become a big story for U.S. LNG.
The canal improvements will cut travel time from the U.S. Gulf Coast, where most export projects are located, to Japan to 20 days, compared with 34 days for voyages around Africa’s Cape of Good Hope or 31 days for ships using the Suez Canal, EIA said.
Similar time savings will result for ships using the Panama Canal to reach China, South Korea and Taiwan.
Together, those four countries account for nearly two-thirds of the global LNG market.
The wider canal will shorten U.S. LNG shipments to South America. Trips to Chile, for example, will take eight or nine days, instead of 20 days before the improvements.
As a further inducement, the Panama Canal Authority offers new tolls designed to encourage LNG traffic, especially for ships making round trips through the passageway.
This comes as the USA is on its way to becoming the world’s third-largest LNG producer by 2020, after Australia and Qatar.
About 9.2 billion cubic feet per day of gas-liquefaction capacity is either in operation or construction in the USA, and applications for permits to build still more facilities are under review in Washington.
Source: USA Today
