Expanded Panama Canal Preparing for New Era of LNG

Panama said it expects 20 million tons of liquefied natural gas to pass through its canal annually once

the newly widened waterway is opened this month. That’s almost a tanker of gas a day traveling

through, based on Bloomberg calculations.

“The canal opens the possibility for that gas to reach Asian markets in a more competitive way because

the Panama Canal route is the shortest,” said Manuel Benitez, deputy administrator of canal authority,

in an interview in Panama City on Wednesday. “We’ve already seen that many very large gas carriers

have already made reservations.”

The $5.3 billion expansion to the canal is set to be inaugurated June 26, allowing it to handle the kind of

massive tankers that transport liquefied natural gas. Its debut is fortuitous for U.S. gas producers as the

shale boom has sent domestic supplies surging and drillers are looking to get their fuel to markets

abroad.

The expanded canal will help U.S. gas producers by cutting the shipping time to markets in Asia,

according to Skip Aylesworth, who manages $1.5 billion in holdings at Hennessy Funds in Boston, and

who holds shares in LNG producer Cheniere Energy.

10 Days

“It helps the shipping company if you can cut ten days rather than going around South America,”

Aylesworth said Wednesday in a phone interview. “It is more profitable for the shipper and that’s good

for Cheniere.”

The volume projected by the Panama Canal Authority represents about 8 percent of global LNG trade

and is equivalent to nearly 300 ships a year, said Bloomberg New Energy Finance analyst Anastacia

Dialynas. Next year the U.S. will export about 8 million tons, she said. Prices in the Pacific aren’t

currently high enough to create a large arbitrage opportunity to send gas from the U.S. Gulf Coast to

Asian markets, according to Madeline Jowdy, director of global gas and LNG at PIRA Energy Group in

New York. LNG prices in Asia and Europe have plunged in line with oil prices, the surge of new gas

export capacity and weakening demand from China and other Asian markets.

“Most of the LNG produced in the U.S. will remain in the Atlantic Basin for the foreseeable future

because of the price collapse and the sheer amount of volume that is going to be appearing in Asia,”

Jowdy said. “There are no arbitrage opportunities.”

Total shipping passing through canal will rise to 389 million tons next year, from 336 million tons this

year, according to Benitez. The number of ships going through per day will drop to 30-31, from 34-36, as

shipping companies send through bigger vessels, he said. The canal forecasts that its revenues will rise

17 percent to $2.8 billion next year.

NGS INDIA