In four years the United States will be the world’s third-largest exporter of liquified natural gas (LNG), behind only Qatar and Australia in an increasingly important energy market. America’s first LNG export facility is now up and running on the Louisiana coast, but most importers of the superchilled hydrocarbon are halfway around the world, in Asia. That’s a long and therefore costly trip for LNG tankers to make, but thanks to the recent expansion of the Panama Canal, American LNG exports to Asia are going to get a good bit cheaper and quicker. The EIA reports:
Transit through the Panama Canal will considerably reduce voyage time for LNG from the U.S Gulf Coast to markets in northern Asia. Four countries in northern Asia—Japan, South Korea, China, and Taiwan—collectively account for almost two-thirds of global LNG imports. A transit from the U.S. Gulf Coast through the Panama Canal to Japan will reduce voyage time to 20 days, compared to 34 days for voyages around the southern tip of Africa or 31 days if transiting through the Suez Canal. Voyage time to South Korea, China, and Taiwan will also be reduced by transiting through the Panama Canal. […]
In addition to shortening transit times, using the Panama Canal will also reduce transportation costs. The Panama Canal Authority has introduced new toll structures for LNG vessels designed to encourage additional LNG traffic through the Canal, especially for round trips…Based on IHS data, the round trip voyage cost for ships traveling from the U.S. Gulf Coast and transiting the Panama Canal to countries in northern Asia is estimated to be $0.30/MMBtu to $0.80/MMBtu lower than transiting through the Suez Canal and $0.20/MMBtu to $0.70/MMBtu lower than traveling around the southern tip of Africa. Transiting the Panama Canal offers reduction in transportation costs to northern Asian countries such as Japan, South Korea, Taiwan, and China and may offer some minimal cost reductions to countries in southeast Asia (Malaysia, Thailand, Indonesia, and Singapore), depending on transit time.
America’s first LNG cargoes were sold to Brazil, in no small part thanks to the shorter trip required. When the U.S. was first plotting its turnaround from building up LNG import facilities towards actually selling its excess shale gas abroad, Asia looked like one of the likeliest markets because of the region’s relatively high prices (historically called the “Asian premium“). But over the past year and a half, Asia’s spot LNG prices have fallen precipitously on flagging demand and the collapse in crude prices (many LNG deals are drawn up as long-term contracts linked to the price of oil). Because of that, it’s harder to justify the expenses involved with liquifying and shale gas and transporting it all the way to Asia.
In this context, any savings America’s LNG exporters can find are going to be exceedingly welcome—the newly enlarged Panama Canal could help U.S. shale gas go global.