LNG and the Panama Canal

U.S. Vice President Joseph Biden will visit the Panama Canal later this month to view progress on the canal’s $525 billion expansion.

The chief catalyst behind the expansion project is the waterway’s ability to handle new mega container ships. Biden will likely face mixed reports on just how much U.S. workers, ports and the national economy will be benefit from the project.

The trip, rescheduled from September due to the conflict in Syria, comes at a time when many analysts in the U.S. are starting to downplay original estimates that U.S. ports, especially those along the East Coast, would see a boom in cargo trade. 

As a result of this expected new business, cities and ports across the country have been gearing up, investing billions in state, local and federal funds to deepen harbors and improve port infrastructure to attract the mammoth vessels. The White House also views the expansion as a job creator.

The project was supposed to be done in 2014 — the canal’s 100th anniversary — but construction delays have pushed the opening to mid-2015.

Shipping experts are saying that these investments might be unrealistic, and that benefits will not come quickly and should be measured in the long term.

A shift in cargo to East Coast ports is possible, but this trend is far from guaranteed, they say. About 70 percent of 14,000 ships that traverse the canal each year head to the U.S., but vessels from Asia, mostly China, go to West Coast ports and then ship by truck or train across country to customers in the East. Experts say this pattern is not likely to change much after the expansion.

They cite several factors for their deflated expectations:

• Some Eastern ports lack the distribution networks needed by the so-called Post Panamax ships, and harbors are too shallow to accommodate the big vessels. West Coast ports are generally in deeper water. Massive port improvement projects are underway along the East Coast, including New York, Baltimore, Miami and Charleston, but Norfolk, Va., is so far the only one deep enough to handle the post-Panamax ships.

• Even though the expansion will double the canal’s capacity to handle ships as long as 1,200′ and as wide as 160′, vs. the current 965’x106′, the canal might actually be too small as cargo ships are being built even bigger than the Post-Panamax.

• There could be some competition to the Panama Canal, further upsetting the economic calculations and shipping patterns. A Chinese entrepreneur is talking to the Nicaraguans about building a competing canal in that country.

• Another unknown will be the impact of the melting northern ice cap that is expected to create a more sustained shipping route through the Northwest Passage in the Arctic from Asia to the Americas. This could take business away from Panama.

But wait, all is not lost. There’s a silver lining, and it could be a big one. The Panama Canal Authority recently announced that when complete, the canal will handle an estimated 12 million metric tons of Liquified Natural Gas (LNG) a year, a cargo that no one expected when the expansion plan was conceived years ago.

The authority says that LNG shipments from the U.S. to Asia via the canal will cost 24 percent less than the longer routes. The expanded canal will be able to handle 90 percent of the LNG tanker fleet, while it can only accommodate 8.6 percent currently.

Driving this estimate is the explosion of LNG production from extraction of fuel from shale rocks. The U.S. is now the world’s largest producer of shale oil, and by 2020 is expected to be the third largest global exporter, according to a study by Morgan Stanley. Gulf ports are expected to benefit. (The U.S. already has good infrastructure there, as it was once the world’ s biggest LNG importer) 

Now that should give the vice president something to talk about.

 

 

About the author

Pamela Glass

Pamela Glass is the Washington, D.C., correspondent for WorkBoat. She reports on the decisions and deliberations of congressional committees and federal agencies that affect the maritime industry, including the Coast Guard, U.S. Maritime Administration and U.S. Army Corps of Engineers. Prior to coming to WorkBoat, she covered coastal, oceans and maritime industry news for 15 years for newspapers in coastal areas of Massachusetts and Michigan for Ottaway News Service, a division of the Dow Jones Company. She began her newspaper career at the New Bedford (Mass.) Standard-Times. A native of Massachusetts, she is a 1978 graduate of Wesleyan University (Conn.). She currently resides in Potomac, Md.

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