The Future of the Panama Canal (A 3-Part Series)

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The future of the Panama Canal: What’s next for LNG, LPG and oil tankers

Greg Miller, Senior Editor

2 weeks ago

PHOTO COURTESY OF ACP

In the first of a three-part series, FreightWaves examines prospects for liquid bulk transiting the Panama Canal. Part Two will feature the outlook for container shipping, and Part Three will focus on dry bulk commodities, led by grains and coal.

As tens of billions of dollars are spent building liquefied natural gas (LNG) export facilities along America’s coastline, the importance of the Panama Canal is coming into sharper focus.

Many of the cargoes from these terminals will be destined for Asia and must pass through the larger ‘Neopanamax’ locks. These locks – which opened for business in June 2016 which recently celebrated their one-thousandth day in service – allow passage of larger vessel types; LNG ships are too large to fit through the original ‘Panamax’ locks.

As U.S. LNG exports surge in the years ahead, will there be enough canal transit slots to handle the load?

“We are not worried, and the LNG industry should feel assured that there is nothing to worry about,” emphasized José Ramón Arango, liquid bulk specialist and executive vice president of planning and commercial development at the Panama Canal Authority (ACP).

“The Panama Canal is not static. It’s a dynamic entity. If more capacity is needed, we’ll do what’s required to improve capacity,” he told FreightWaves.

A total of 23.3 million tons per annum (mtpa) of capacity of ‘first wave’ LNG export facilities is already online in Louisiana (Sabine Pass) and Maryland (Cove Point). During the remainder of this year, another 19.5 mtpa of capacity is expected to debut in Louisiana (Cameron LNG, Sabine Pass), Texas (Freeport LNG, Corpus Christi) and Georgia (Elba Island).

Beyond that, ‘second wave’ project approvals have begun, including a green light for the massive 15.6 mtpa Golden Pass facility in Texas. Other final investment decisions are believed imminent.

According to ACP data, 6.36 million long tons (1 long ton = 2,240 pounds) of LNG transited the Neopanamax locks during FY2017 (October 1, 2016-September 30, 2017). The volume rose 81 percent to 11.5 million long tons in FY2018.

Arango said that the ACP predicts LNG volumes will reach 15 million long tons in FY2019 and jump to 28 million by FY2021. None of this was expected when the ACP first embarked on its plan to build the new locks.

“It’s worth remembering that when we first started the expansion project back in 2007, it was just the beginning of the shale revolution,” he noted. LNG ships were too large to transit the original ‘Panamax’ locks, and at the time the plan for the new locks was approved, U.S. exports were not on the table (the first export project, Sabine Pass, did not file its initial permit until 2010).

Because it had never handled LNG transits before, the ACP began slowly, with one LNG transit slot per day, and nighttime transits prohibited. A second LNG transit slot was added in October 2018, out of a total of eight slots for all ship types using the Neopanamax locks, and LNG ships were allowed to enter the canal at night if they exited in daylight.

Arango said that there is now an average of 1.2 LNG ships transiting the canal per day, and at one point, four such vessels transited simultaneously, two in each direction. He also disclosed that talks are underway with pilots on the idea of removing the daylight-exit requirement.

The ACP modified the reservation system for LNG bookings in October 2018, allowing reservations within 21-80 days of transit, instead of the previous 365 days. Arango explained, “When it was 365 days, only 50 percent of the slots that were booked were used.” LNG shippers paid cancellation fees for the rest, causing scheduling complications for the ACP.

The new system allows LNG shippers to better match transits with their needs, as they determine whether to send U.S. Gulf-sourced LNG to Asia or Europe. When Asia LNG spot prices are too low, cargoes flow across the Atlantic instead.

This is exactly what transpired in recent months, when Asian LNG spot prices sank to multi-year lows. “In December and January, we saw the arbitrage to Asia close, and we saw more cargoes going to Europe and not using the canal,” Arango confirmed.

LPG surprise

For all the attention on the canal’s LNG handling ability, LNG is not the highest-volume liquefied cargo trade for the waterway – that crown goes to liquefied petroleum gas (LPG) – another positive surprise for ACP planners.

Long-haul U.S. LPG exports to Asia are carried aboard very large gas carriers (VLGCs), which have a carrying capacity of around 84,000 cubic meters. Only a handful of VLGCs had been able to transit the original Panamax locks.

When the expanded waterway opened, the majority of VLGCs that had previously sailed to Asia around the Cape of Good Hope immediately switched to the Neopanamax locks. This shortened the voyage distance by around 40 percent, which effectively increased the supply of available VLGCs, putting further pressure on freight rates.

By FY2018, LPG carriers accounted for 25 percent of transits through the Neopanamax locks, second only to container ships, which accounted for 46 percent; LNG ships logged the third most transits, representing 12 percent of the total. Arango said that the ACP expects VLGC transits to rise even further this year.

LPG that had previously gone to China was rerouted to other buyers in Asia starting in mid-2018 due to Chinese tariffs on U.S. propane, with China switching its propane sourcing to the Middle East. VLGC transits through the canal were largely unaffected. According to Arango, “Increased LPG imports to Japan and [South] Korea offset the imports to China, and there was basically no effect in terms of [canal] traffic.”

Crude averts canal

Ironically, as America’s oil production reaches new heights, the vessel classes that are most affected by that surge – crude oil and product tankers – are the least important of the liquid bulk businesses for the canal.

U.S. crude exports to Asia are shipped aboard very large crude carriers (VLCCs) that can load 2 million barrels of cargo. Because of the lack of VLCC-capable loading facilities on the U.S. Gulf coast, crude is first loaded aboard 750,000-barrel Aframax-class tankers at the pier, then transferred to VLCCs offshore. This so-called ‘reverse lightering’ process is likely to wane over the next few years, as at least 10 VLCC-capable loading facilities are under development.

“The big new driver has been U.S. tight [shale] oil, but VLCCs are being used for crude, and that is not a ship size that can transit the Panama Canal,” said Arango, who conceded that crude would likely remain only a small slice of the waterway’s business going forward.

Crude and product tankers face two other constraints. First, the Neopanamax locks use tugs, not locomotives; for safety reasons, most tankers require equipment retrofits to use the new tug-based system. Second, drought conditions have lowered the water levels in Gatun Lake, restricting the loads tankers are able to carry. The latest restriction, to a maximum draft of 45 feet, went into effect on April 10.

Tankers that are transiting the canal are primarily refined-product carriers sailing from the U.S. Gulf to the west coast of South America, and to a lesser extent, tankers carrying Colombian crude to the West Coast of the United States and Ecuadorian crude to the U.S. Gulf. Crude and product tankers combined accounted for only 1 percent of transits through the Neopanamax locks in FY2018, and 6 percent of transits via the Panamax locks.

 

 

https://www.freightwaves.com/news/maritime/the-future-of-the-panama-canal-whats-next-for-lng-lpg-and-oil-tankers

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The future of the Panama Canal: What’s next for container shipping

Greg Miller, Senior Editor

 

1 week ago

PHOTO COURTESY OF ACP

In the second of a three-part series, FreightWaves examines prospects for container ships transiting the Panama Canal. Part One featured the outlook for liquid bulk and Part Three will focus on dry bulk commodities, led by grains and coal.

The expanded locks of the Panama Canal, which debuted in June 2016, have been a boon for many shipping sectors, but they were specifically designed with container shipping in mind. “What we have seen, which is very important, is that the canal expansion program has been a success for the container segment,” affirmed Argelis Moreno de Ducreux, senior international trade specialist at the Panama Canal Authority (ACP).

The larger ‘Neopanamax’ locks, which recently celebrated their one-thousandth day in service, allow passage of container ships with a capacity of up to around 15,000 twenty-foot-equivalent units (TEU). The legacy ‘Panamax’ locks accommodate box ships of around 4,500 TEU.

Immediately after the Neopanamax locks opened, carriers deployed ships of around 8,000 TEU. After the air draft of New Jersey’s Bayonne Bridge was raised in 2017, allowing passage underneath of larger vessels, the average ship size rose to near 10,000 TEU.

Dividing line

Back when the new locks were under development, ACP business planners predicted that transits by much larger box ships would significantly reduce the per-unit costs of containers shipped to the U.S. East Coast from Asia, making this route more competitive with services from Asia to the ports of Los Angeles/Long Beach.

ACP planners described the United States as divided by a line running from north to south, roughly around the Ohio Valley. To the west of that line, it was cheaper for Asian cargo to be unloaded in California, then shipped eastward via intermodal to interior states. To the east of that line, it was more economical to use the Panama Canal to bring boxes to the East Coast, then use rail and/or trucking to bring cargoes westward.

When the canal allowed larger ships to transit with lower per-unit costs, the ACP envisioned this dividing line shifting to the west, bringing more of the U.S. population within the zone served by liner services using the canal – effectively stealing market share from Los Angeles/Long Beach.

De Ducreux maintained to FreightWaves that this theory has now been confirmed. “It has happened. We analyze the market share of volumes from Northeast Asia to the U.S. East Coast using the Panama Canal, to the West Coast and using the intermodal system, and coming through the Suez Canal. Since 2016, our share has increased from 43 percent to 48 percent, and the intermodal share has decreased from 27 percent to 20 percent.”

The caveat is that if the Panama Canal route is stealing market share, containerized cargo volumes transiting the waterway to the East Coast of the United States should be increasing at a higher rate than the overall U.S. container import trend. ACP statistics do not yet show clear evidence of this.

There have now been two full fiscal years since the expansion was complete (ACP fiscal years run from October 1 to September 30). Containerized volumes totaled 57.16 million long tons (1 long ton = 2,240 pounds) in FY2018, up 6.5 percent from FY2017. This is roughly in line with the national growth average.

According to the Port Tracker report, sponsored by the National Retail Federation, U.S. containerized imports rose 6.2 percent last year.

Cannibalization

What the ACP statistics clearly do show is a strong cannibalization effect, with the Neopanamax locks taking container-ship volumes from the Panamax locks. Containerized volume through the new locks totaled 40.95 million long tons in FY2018, up 19 percent, while volume through the old locks was 16.2 million long tons, down 16 percent.

The same trend is apparent in the first six months of FY2019 (through March). Total box cargo through both locks is up 7 percent, with Panamax volumes down 16 percent and Neopanamax volumes up 16 percent.

There are currently 12 container-line services still using the older Panamax locks; vessels on these routes have remained at their original size due to the water-depth restrictions at loading and/or unloading ports. There are now 16 liner services using the Neopanamax locks, including 12 connecting Asia with the East Coast of the U.S., two from the west coast of South America to Europe, one from the U.S. West Coast to Europe, and one from Asia to the Caribbean.

Service strings on the Asia-U.S. East Coast route have included vessels with capacities of over 14,800 TEU. “The shipping lines have been deploying bigger ships. The average vessel size has been increasing dramatically since the opening of the new locks and I think this will continue,” said De Ducreux, adding that the formation of container-line alliances is accelerating the trend, by allowing carriers to share services and maximize utilization aboard even larger vessels.

When asked about the impact of U.S.-China trade tensions on canal container-ship transits, de Ducreax said it has been a positive – so far.

“What we saw was an increased volume of loaded containers coming from Asia to the U.S. East Coast as part of a strategy of many shippers of bringing in more cargo before they came to a decision [on tariffs],” she said. If those tariffs are ultimately implemented, the consequences for the canal would turn negative.

 

https://www.freightwaves.com/news/maritime/the-future-of-the-panama-canal-whats-next-for-container-shipping

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The Future Of The Panama Canal: What's Next For Grain And Coal Shipping

FreightWaves

Benzinga

April 26, 2019

 

In the final installment of a three-part series, FreightWaves examines prospects dry bulk commodities transiting the Panama Canal. Part One featured the outlook for liquid bulk and Part Two focused on container shipping.

Since the Panama Canal's larger ‘Neopanamax' locks debuted in June 2016, the spotlight has shone on container ships and carriers of liquefied natural gas and liquefied petroleum gas. There has been relatively little focus on dry bulk, even though it remains the canal's highest-volume cargo type by far.

The Neopanamax locks, which recently celebrated their one-thousandth day in service, allow passage of Capesize bulker of up to 205,000 deadweight tons (DWT) in ballast (empty), or partially loaded with up to 129,000 DWT of cargo, due to water-depth restrictions.

During the most recent fiscal year (October 2017-September 2018), dry bulk cargoes – primarily grains and coal – accounted for 47 percent of volume through the original Panamax locks, 14 percent through the newer Neopanamax locks, and 36 percent through both locks combined, topping runner-up container shipping's 22 percent share of total cargo volume. Statistics from the Panama Canal Authority (ACP) confirm that dry bulk's dominance continues in the first six months of FY2019, through March.

Two key trends are playing out – one in the Panamax locks, the other in the Neopanamax locks.

In the Panamax locks, U.S. agribulk (primarily soybeans, sorghum and corn) is an important component of dry bulk volumes traversing the waterway en route to Asia.

�We have seen a decrease in volume because much of the grain coming from the United States is going on routes other than the Panama Canal�

— Argelis Moreno de Ducreax, ACP

U.S. agribulk shippers did not switch to larger vessels via the Neopanamax locks because grain elevators and loading facilities along the U.S. Gulf are designed to handle 65,000-90,000 DWT Panamax bulkers, not larger 100,000 DWT-plus Capesize bulkers.

Panamax decline

The trend in the Panamax locks has been towards decreased volumes coinciding with U.S.-China trade tensions. In FY2018, soybean volumes moving from the Atlantic to Pacific Basins fell 43 percent and sorghum volumes dropped 34 percent. China is replacing its U.S. purchases with cargoes from Brazil and Argentina, which travel via the Cape of Good Hope, not the Panama Canal.

According to ACP senior trade specialist Argelis Moreno de Ducreax, "We have seen a decrease in volume because much of the grain coming from the United States is going on routes other than the Panama Canal."

She attributed the trend partly to the low charter rates for bulkers, which allow shippers to take longer routes and avoid canal tolls. "There has been so much of an oversupply of vessels that charter rates are very low, and bunker prices are also low, so they can afford to use alternative routes like the Cape of Good Hope," she explained in an interview with FreightWaves.

Total dry bulk volume through the Panamax locks fell 9 percent in FY2018, and the downward trend continues in the first half of the current fiscal year. According to ACP statistics, dry bulk cargo volumes through the Panamax locks fell 5 percent in the October 2018-March 2019 period compared with the same period in the prior year.

Colombian coal
Over in the larger Neopanamax locks, a very different – and positive – trend is taking root. Here, Colombian coal shippers have emerged as the predominant customers, and demand is growing, albeit at levels that are still just one-fifth of those in the Panamax locks. Neopanamax bulk cargo volumes jumped 49 percent in FY2018 compared to FY2017, to 11.5 million long tons (1 long ton = 2,240 pounds), and were up another 38 percent in the first half of FY2019.

"The biggest volumes we have seen through the Neopanamax locks are coal loaded at the Colombian ports on the Caribbean side, going to Chile and Guatemala on the Pacific side, as well as to Asia," said De Ducreax.

She explained that 52 percent of the bulkers transiting these locks have carried coal, with 59 percent of those vessels loading in Colombia. She added that shippers are using both Panamaxes and Capesizes to transport the coal.

De Ducreax noted that there are also at least a few Panamaxes loading grain in the U.S. Gulf that have switched to the Neopanamax locks, although the number is still very small. There have been 13 Panamax transits from the U.S. Gulf to Asia through the Neopanamax locks since June 2016. The new locks have a deeper water depth, which allows agribulk shippers to more fully utilize Panamax cargo holds.

The outlook for dry bulk volumes transiting the Panama Canal remains unclear. For the Neopanamax locks, the driver will be Colombian coal production. Analyst Fitch Solutions recently lowered its 2019 Colombian production outlook from 4.5 percent growth to 0 percent, citing weaker pricing prospects.

The outlook for bulk cargoes through the Panamax locks hinges on the outcome of the U.S.-China trade talks, and the eventual destination of U.S. soybeans.

Further clouding the forecast is the drought in Panama, leading to an ongoing string of draft restriction announcements, with the latest restriction – to a maximum draft of 45 feet – effective on April 10. Such restrictions reduce the cargo load per bulk carrier, negatively affecting voyage economics for shippers.

 

https://finance.yahoo.com/news/future-panama-canal-whats-next-143923633.html