[[{“value”:”
- The Panama Canal has had to navigate several headwinds in recent months.
- Restrictions at the Panama Canal have been eased in recent months, and the canal authority hopes ship traffic will begin to rise.
- Panama Canal officials started earlier this year discussions with U.S. LNG producers on how the canal could help American exporters move more LNG vessels via the shortest route to Asia.
After a year of traffic restrictions and upended global trade flows due to geopolitical shifts, the Panama Canal – the fastest route for American LNG to Asia – is introducing a new long-term booking system, hoping to attract larger volumes of U.S. LNG traffic.
“In the case of LNG, we lost 65% (of traffic), which is the traffic that now goes through Cape Horn, compared to what we had last year, two years ago,” Panama Canal administrator, Ricaurte Vásquez Morales, told Reuters in an interview in Panama City.
The Panama Canal has had to navigate several headwinds in recent months. First was the historic drought at Gatún Lake, which supplies the water used to operate the Canal’s locks. Water levels at the lake slumped to the lowest since at least 1965, forcing the Panama Canal Authority to reduce vessel traffic in 2023.
The reduced traffic and record waiting time added to a more chaotic global maritime trade. Vessels had to pass through the Suez Canal or travel around the Cape of Good Horn in Africa. But the Houthi attacks on commercial shipping in and around the Red Sea forced energy traders to move more oil, fuels, and LNG via the longer route around the southern tip of Africa.
Restrictions at the Panama Canal have been eased in recent months, and the canal authority hopes ship traffic will begin to rise, including that of U.S. LNG cargoes going to Asia.
Since 2022, when Russia stopped supplying pipeline gas to nearly all EU countries, American LNG exports have shifted from predominantly Asia-bound to Europe.
U.S. LNG is still flowing to Asia, and the Panama Canal is the shortest route. But it may not always be the cheapest as the Canal charges a fee per passage. At times, depending on LNG prices in Asia, LNG carriers could even find it cheaper to go around Africa en route to Asia.
“Sometimes people forget that going through the canal … is not a free shortcut,” Anatol Feygin, Executive Vice President and Chief Commercial Officer at Cheniere Energy, the top U.S. producer and exporter, told Reuters.
Panama Canal officials started earlier this year discussions with U.S. LNG producers on how the canal could help American exporters move more LNG vessels via the shortest route to Asia, the canal administrator Vásquez told Reuters in May.
The Panama Canal is also introducing a Long-Term Slot Allocation (LoTSA) system of transit bookings for Neopanamax vessels, in which shippers can book slots for passage up to one year in advance.
U.S. LNG exporters will need more Panama Canal transit considering that they, as well as analysts and LNG traders, expect Asian demand for LNG to surge for years to come, especially in China and major developing economies in south Asia and Southeast Asia.
Cheniere Energy, for example, expects Chinese demand for natural gas to jump by more than 50% by 2040, from 400 billion cubic meters (bcm) now to more than 600 bcm.
Cheniere expects China to become the world’s first market with 100 million tons of LNG demand very soon. LNG will represent about 25%-30% of China’s total natural gas demand, Yingying Zhou, director LNG origination at Cheniere, said last week.
China, which has surpassed Japan in recent years to become the world’s largest LNG importer, will be a key growth driver of global LNG demand growth, industry analysts and major LNG traders say.
For example, Shell, the world’s top LNG trader, expects global LNG demand to surge by 50% by 2040, driven by higher demand from Asia, with coal-to-gas switching in China and a boost in LNG consumption to fuel economic growth in South and Southeast Asia. The global LNG market is set to continue growing into the 2040s, largely driven by China’s industrial decarbonization and strengthening demand in other Asian countries, Shell said in its annual LNG outlook earlier this year.
Asia’s AI technology and data centers are also set to drive LNG demand higher in the coming years.
By Tsvetana Paraskova for Oilprice.com
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The post Panama Canal Bets on Asian Demand to Boost Flailing LNG Traffic appeared first on Energy News Beat.
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