News:Americas

LNG moving through the Panama Canal - a huge market, or maybe not so much?

In late July, a month after the opening of the widened Panama Canal locks, shipping and energy experts were feting the transit of the LNG tanker Maran Gas Apollonia (too big for the “old” locks with its 289 m loa and 45 m beam) which had loaded a week earlier at the Sabine Pass terminal in the US Gulf.

Officials from the Panama Canal are very bullish on the prospects for transits of LNG vessels through the Canal, especially based on anticipated liquefaction coming online in the US. A recent US Department of Energy estimate suggested that 38m tons of LNG (approximately 550 cargoes) per year could be moving out of the US Gulf to Asian destinations by 2021. Canal officials were heralding a new era in energy transportation. Maybe yes, maybe no; Genscape LNG analyst Ted Michael, an expert on the commercial aspects of the gas markets, is not entirely convinced.

Commercially, the market is changing, with the Genscape analyst explaining that the LNG markets have been in the process of a sea changing paradigm shift over the past few years in a direction that favors increased spot trading of LNG- rather than lengthy contracts that bring about steady and predictable cargo flows. He cites a trend toward “No destination clauses”, which enable gas cargoes to be sold onward from an original destination, rather than only taken at specific location.

Michael told Seatrade Maritime News recently: “The European Union unbundled their supply chains- pushing back on Gazprom, and the Japanese are now similarly pushing for the ability to open up through the no destination clauses.” JERA, a large LNG buyer, has publicly stated that it will scale back its purchases under long term contracts. “The market power has shifted to the buyers.”

Market economics have also changed. The Fukushima disaster in Japan brought about an LNG import surge, and an “Asia premium” developed, where gas prices in Asia (tied to crude oil prices) were as much as $5/mcft higher than those in the Atlantic Basin. But three and a half years later, after oil prices collapsed, the premium disappeared, with

Michael saying: “We may not see that premium back for another ten years.”

Michael, citing deals by EDF and others, pointed to a market where cargo swapping will increasingly become the norm. With Australia set to become the world’s largest LNG producer, it can easily supply Asia- more economically than cargo coming from halfway around the world. Likewise, with little or no price premium (and freight arbitrage) to support faraway sales, gas produced in the Atlantic - even where the Japanese have stakes in the liquefaction trains - will tend towards shorter voyages.

However, Michael expects that there will be price spikes, from time to time, which would create short-term opportunities to ship Atlantic-produced LNG to Asia. “Maybe demand based pricing would work for the Canal,” he suggested.

Posted 12 September 2016

© Copyright 2017 Seatrade (UBM (UK) Ltd). Replication or redistribution in whole or in part is expressly prohibited without the prior written consent of Seatrade.

Barry Parker

New York correspondent, Seatrade Maritime

NEW DOWNLOAD: The guide to the 2020 IMO 0.5% fuel sulphur regulation

Explore the few options Shipowners have to choose from to comply with the regulation, while refiners are expected to make changes to refinery configuration and production in response to market demand.

Contents:

  • Executive summary
  • On the receiving end - shipping 
  • What it means for the refiners
  • Shipping options
  • Conclusions

This guide also provides you with the information you need to know regarding bunker fuel supply, as the availability landscape is set to change when IMO’s global 0.5% fuel sulphur content cap regulation is enforced from 2020. 

Click here to download the whitepaper now and explore the options available to the industry.