Wood Mackenzie expects lengthy delays to the anticipated Panama Canal expansion to impact the liquefied natural gas (LNG) industry. Significant disruptions will limit profitability for US LNG producers and create a tighter shipping market.
The research firm expects the recent cost overrun disputes surrounding the canal expansion to be resolved with limited disruption, due to the significance of the Panama Canal to global trade.
Commenting on the impact of the delays, Andrew Buckland, Senior LNG Shipping Analyst at Wood Mackenzie, said: "Given the enormous strategic and financial importance of the Canal to Panama, we expect the gridlock to be resolved. If the delays last 6 – 12 months, it will have limited impact, as trade will carry on much as it does now, but further delays threaten the investments of a significant number of groups that are set to benefit from expanded capacity on the waterway."
The expansion of the canal will benefit users depending on the position of their ports in relation to the Panama Canal, particularly the US, whose cargo accounts for 65% of total cargo moved through the canal.
- LNG is not currently traded through the Panama Canal as most LNG vessels are too wide to fit through the locks. The expansion project will allow all but the very largest LNG ships to use the Panama Canal.
- A delay until early 2016 will impact the first US Gulf LNG exports from Sabine Pass. This will impose a higher shipping cost to target markets in Asia, as ships will need to take a longer route via the Cape of Good Hope. However, the differential between US and Asian gas prices will still make the trade profitable and initial volumes will be small as the project ramps up.
- The LNG shipping market will be tighter (with higher spot-market freight rates) than it would otherwise have been, as volumes from Trinidad and the USA will have to travel a further distance to Asia. The LNG shipping market is expected to weaken between now and 2016 as new ships are delivered to the market before new capacity comes on-stream.
Adapted from press release by Katie Woodward
Read the article online at: https://www.lngindustry.com/lng-shipping/25022014/panama_canal_delays_could_disrupt_lng_trade_212/