Congestion of Panama Canal caused by unprecedented drought which has lowered water levels on the canal, affecting commodities trade between US and Asia.
Congestion of Panama Canal caused by unprecedented drought which has lowered water levels on the canal, affecting commodities trade between US and Asia.
Some US LNG and LPG cargoes reportedly changed its original destinations toward Asia and are en-route European ports or use much longer and costly route to Asia through the Cape of Good Hope.
Panama Canal Authority (ACP) has recently confirmed that it will reduce daily ship crossings in the coming months due to a severe drought. Booking slots cut to 25/D from an already diminished 31/D and will be gradually reduced further over the next three months to 18 slots from 1-Feb.
Water levels in Gatun Lake, the rainfall-fed principal reservoir that floats ships through the Panama Canal's lock system, have continued to decline to unprecedented levels for this time of year, the ACP said. "The recorded precipitation for October has been the lowest on record since 1950 (41% below), and so far, 2023 ranks as the second driest year for the same period."
Panama Canal has been used by US Gulf Coast exporters to ship LNG to Asian buyers via the Pacific Ocean, serving as the quickest way to reach the largest LNG market.
The US EIA has remarked that congestion at the canal "have pushed shipping rates higher elsewhere by decreasing the globally available number of vessels” and pushing up the cost of shipping LPG and LNG from the US.
Increasing US LNG supply to Europe where gas storages are almost full would cause accumulation of floating LNG cargoes and reduce gas prices in this market while Asia where approaching winter will increase seasonal LNG demand couldn’t be adequately and affordably supplied by the US LNG.
This situation would also undermine competitiveness of US LNG suppliers and particularly spot cargoes exporters who have to burden more cost for shipping the cargo to Asia.
LNG shipping cost from the US Gulf Coast to JKT via the Panama Canal is estimated to be 50% and 52% cheaper than Suez Canal and Cape of Good Hope routes, respectively.
Earlier, US largest LNG exporter Cheniere had said that it is shunning the Panama Canal to transport LNG to Asia because the market is not supporting use of the waterway.
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