Panama Canal: Will capacity expansion be enough for US LNG?

Many US export projects are relying on transit through the canal to reach Asia. To mark its 100th anniversary, we assess whether Panama can deliver

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The US$5.2 billion Panama Canal expansion project is expected to enter full commercial operations in January 2016 – more than a year after its original target start date.

The expansion of the canal holds particular significance for America as it offers time (and cost) savings on trade routes from the US Gulf Coast to East Asia – roughly 26 days on a round trip to Japan.

But, with competition for use of the canal, will capacity be an issue?

We forecast that around 90 mmtpa of LNG export will be available from the US and Trinidad and Tobago by 2025.

Forecast US Gulf US East Coast and Trinidad and Tobago LNG exports

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Of this, we believe that around 30 mtpa will flow to the Pacific basin via the Panama Canal - equivalent to 1 LNG ship per day, each way. In the shorter-term, when market conditions favour inter-basin trade, this may increase to two or three LNG ships each day.

The new wider locks at the canal could enable up to 170 mmpta of Atlantic basin LNG to flow to the Pacific basin from the Atlantic, utilising approximately six LNG ships per day each way.

But in reality, LNG will have to compete with other ship types for use of the canal - principally container traffic.

However, this is likely to be less of a threat than originally expected, due to the subsequent construction of larger container ships which are too big to fit through the expanded canal.

Consequently, we can conclude that there should be more than sufficient capacity in the expanded canal to accommodate US LNG bound for Asia.

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Will Panama Canal capacity be an issue for US LNG exports? [Subscription only]

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