LNG

The Panama Canal Authority said it was trying to increase US liquefied natural gas transits and had invited energy company executives to Panama for discussions as water levels recovered on the Canal after a prolonged drought blamed on the “El Niño” weather effects.

The ACP, as it is known from its Spanish name Autoridad del Canal de Panamá, said traffic was recovering from a low point at the start of 2024 when booking slots for vessels were cut to 22 ships from all sectors.

During the Atlantic Basin-Pacific Basin transits the ships are lifted from sea level in locks up to the Panama Canal’s Gatun Lake where the water levels had dropped substantially and the levels have risen again.

Bottlenecks

However, during the first quarter most US LNG carriers looking to reach Asia were continuing to choose the longer trans-Atlantic route around South Africa to avoid shipping bottlenecks impacting transits via the Panama Canal, and as security concerns also increased in the Red Sea area to take the Suez Canal out of play.

During March and April up to 30 LNG carriers per month left US LNG plants with Asian cargoes and headed for the longer route to Asia rather than use the Panama Canal.

The latest ACP data showed that only 14 US LNG carriers reached the Asian market via the Panama Canal during the first quarter of 2024 compared with 40 LNG vessels during the same period of 2023.

LNG carrier transits through the Panama Canal's Neopanamax locks had amounted to under 5 percent of the total in the past two months compared with more than 60 percent by other large vessels like containerships.

The ACP said it was now working to modify transit slot allocations and has sent out a survey to all Canal users, including LNG customers, to identify their needs.

Panama invitation

Now that transits have returned to near normal the ACP said it was looking for ways to guarantee crossings for LNG carriers from the US Gulf Coast and other areas and said it had invited LNG companies to come to Panama later in May for talks.

“We will talk and define parameters and will listen to the very big aspirations of the companies,” a statement said.

The ACP has proposed building water reservoirs as medium-term to long-term solution to try and mitigate the drought and low-water conditions being repeated on a regular basis in the Canal system.

The project to widen the Canal at a cost of $5.5 billion was inaugurated eight years ago in June 2016 enabling the largest LNG carrier and containerships to transit the waterway.

While LNG from the US Gulf Coast has mostly pointed at an Atlantic crossing to Europe over the past year, Asia is still a key market for US LNG through the Canal.

Recovery plan

The Canal expansion work included two new lock complexes with a total of 16 gates, eight on the Pacific side and eight on the Atlantic side.

The primary action plan of the ACP is to tap additional rivers to join the Chagres River, the largest river in the Panama Canal's watershed.

The original Canal builders had dammed the Chagres River in two places to create Gatun Lake and the water used for the locks.

The ACP is now seeking to accelerate its plan to divert four additional rivers into the watershed by 2030.

Global pricing agency Platts said the Japan-Korea Marker (JKM) price for liquefied natural gas assessed by the US firm rose to a record high of $20.705 per million British thermal units

Asian spot LNG prices are riding at six-year highs, as a cold spell in some countries in North Asia prompted record imports into the region.

While Platts reported the temporary record $20.705 trading level, though the February settled prices were still generally at around $15.550 per MMBtu.

The March price was at $9.550 per MMBtu and April was quoted at $6.500 per MMBtu.

Analysts said demand from Japan has pushed up North Asia spot cargo prices.

Jera Co. Inc., Japan’s biggest power generator and the world’s largest buyer of LNG, as well as other Japanese electricity and gas companies, are competing with LNG buyers in China and South Korea to secure supplies.

Platts said that the situation also meant that fewer cargoes were coming to Europe than is usual for this time of year.

The UK National Balancing Point benchmark gas price had been firm over the past week though has now fallen under $7.00 per MMBtu.

The NBP was last at $6.95 per million British thermal units while the continental European Dutch Title Transfer facility (TTF) price was lower at the equivalent of $6.35 per MMBtu.

“A major demand stimulus for the recent price increase was the cold snap across northeast Asia which has boosted gas consumption and accelerated drastic inventory draw-down in Japan, South Korea and China,” explained Platts.

“On the supply-side, production issues in countries such as Malaysia have depleted availability and led to delayed or deferred deliveries of LNG, as well as reduced volumes stipulated under long-term contracts,” it added.

US Gulf Coast LNG prices were lower. The February derivative contracts for FOB cargoes has declined to $5113 per MMBtu from
$6.400 per MMBtu.

The March price also fell back on the week to $4.883 per MMBtu from $5.929 per MMBtu. The April GCL price was from $4.532 per MMBtu.

Additionally, there have been shipping traffic constraints in the Panama Canal, meaning vessels carrying shipments from the US Gulf Coast have experienced longer shipping times into the Pacific region.

“This has meant more cargoes are expected in Asia in the later weeks of February or in March,” stated Platts.

Platts said it forecast a drop in Asia-Pacific demand through the first quarter. Even if some supply outages continue through March, prices were likely to decline.