By Marianna Parraga, Elida Moreno and Curtis Williams
PANAMA CITY/HOUSTON (Reuters) - The Panama Canal aims to regain vessel traffic carrying U.S. liquefied natural gas to Asia as demand in that market rises and a new reservation system allows shippers to lock in slots, following a 65% decline in the transit of its second-most important segment, the Panama Canal Authority told Reuters.
A U.S. LNG switch to Europe in the aftermath of Russia's invasion of Ukraine, combined with long waiting times and expensive fees to transit through Panama due to severe drought, have kept many LNG ships out of the canal.
Many gas exporters continue to take longer routes around South America even after the waterway's authority lifted the restrictions this year. The canal is the shortest route to Asia for U.S. gas exporters, whose sales to Japan, China, South Korea and India have grown substantially in the last decade.
"In the case of LNG, we lost 65% (of traffic), which is the traffic that now goes through Cape Horn, compared to what we had last year, two years ago," said the Canal's administrator, Ricaurte Vazquez, in an interview in Panama City.
Europe's large appetite for U.S. LNG and delays authorizing new LNG projects in the United States have been the main drivers of the switch, he added, although the canal's drought-related restrictions also played a key role, shippers said.
"The challenges of the last drought were very visible for everybody," said Anatol Feygin, an executive vice president at Cheniere Energy, the top U.S. LNG producer.
Because the Panama Canal Authority charges a set fee per passage, it can be more convenient for U.S. producers to take longer routes to Asia depending on global LNG prices, delivery terms in contracts and seasonal demand.
"Sometimes people forget that going through the canal ... is not a free shortcut," Feygin said, referring to transit fees. "Economically, the solution of going around the Cape is not far from the economics of going through the canal."
But a recovery in Asian LNG demand, likely to continue next year, might require increased shipments through the canal.
"We do think that growth in LNG demand will be driven by Asia," Feygin added, referring to China, South Asia and Southeast Asia. "And we do think that U.S. Gulf Coast volumes will continue to be the single largest exporting node in the world."
MORE PASSAGES NEEDED
A new reservation system and lower costs allowed the canal's net income to rise 9.5% to $3.45 billion in the fiscal year that ended in September, despite the drought.