Panama Canal LNG congestion may become structural

  • Market: Natural gas
  • 02/04/21

Congestion at the Panama Canal, which has been hampering US LNG deliveries to Asia in recent months, may be a recurring feature in the LNG market in the coming years.

With the third train of the 15mn t/yr Corpus Christi facility still in the commissioning phase, the US is already producing about three LNG cargoes daily (see graph). But no more than one LNG carrier a day can take the quickest route through the Panama Canal to typical global premium markets in northeast Asia. The Canal Authority normally allows no more than two LNG carriers a day to transit the waterway, either both heading to the Gulf of Mexico or one in each direction, although it has occasionally allowed some extra crossings. When Asian prices are high enough to attract Atlantic basin cargoes, LNG tankers coming from the US may also have to compete with Trinidadian cargoes to secure the limited number of Panama slots on offer.

Asia taking a portion of US exports in line with the historical average would already be sufficient to create congestion at Panama. Since the US began exporting LNG, eastern Asia has received on average 35pc of total US production, against 30pc that instead found a buyer in Europe or the Middle East. That said, while eastern Asian markets absorbed the largest share of US cargoes in 2017-18, a tighter arbitrage between the two main markets led to Europe taking a larger share in the past two years (see graph). But LNG demand in the two regions is of a fundamentally different nature — with the largest Asian economies relying heavily on seaborne imports, while most European markets only buy LNG when prices are competitive with other supply sources.

The limited Panama capacity has already forced a large share of US cargoes to take a longer route to Asia in recent months, either through the Suez Canal or the Cape of Good Hope. The US sent a total of 265 cargoes to northeast and southeast Asia last year, but only 219 laden vessels from the US crossed Panama, suggesting at least 21pc of US flows to Asia had to take a longer and more expensive route. US deliveries to eastern Asia were 152 in 2019, accounting for 85pc of the 178 Panama crossings by US cargoes. That said, Asian demand for US cargoes was particularly strong in the fourth quarter of 2020, which was likely to have exacerbated congestions and bolstered use of alternative routes (see graph).

A sharp increase in northeast Asian demand coupled with slower regional production, particularly from Australia, resulted in LNG prices reaching an all-time high in recent weeks. Regional demand continuing to rise at the pace seen in recent years may increasingly require brisk imports from outside the basin. Northeast Asian demand grew at an average of nearly 7pc/yr over the past five years and the region absorbed about 8.2mn t more than a year earlier in 2020. The third 3.8mn t/yr train at the Tangguh facility in Indonesia, expected to start in September this year, is the only new liquefaction facility under construction in the Asia-Pacific basin at present. The addition of the 3.4mn t/yr Coral South FLNG in Mozambique may also be insufficient to dent the regional imbalance, suggesting Asian markets may continue to absorb the vast majority of Qatari supplies, while needing to open an ample premium to European markets to cover the additional costs of US deliveries through Suez or the Cape of Good Hope.

The 5.4mn t/yr Papua LNG project and the planned 2.7mn t/yr third liquefaction train of PNG LNG have yet to reach a final investment decision and are not expected to come on stream before 2024. The 13.1mn t/yr Mozambique LNG project, Mexico's 2.5mn t/yr Energia Costa Azul — which is located on the country's Pacific coast — and the first new train of Qatar's planned Ras Laffan expansion are not expected to be completed before 2024-25.

Total US exports Cargoes

US exports by region Cargoes

US exports, by destination Cargoes

Sharelinkedin-sharetwitter-sharefacebook-shareemail-share

Related news posts

Argus illuminates the markets by putting a lens on the areas that matter most to you. The market news and commentary we publish reveals vital insights that enable you to make stronger, well-informed decisions. Explore a selection of news stories related to this one.

News
02/23/24

Jera to invest in Australia's Scarborough gas project

Jera to invest in Australia's Scarborough gas project

Osaka, 23 February (Argus) — Japanese LNG importer Jera has decided to invest in the Scarborough gas project, being developed by Australian independent Woodside Energy off the northwest coast of Western Australia. Jera on 23 February agreed with Woodside Energy through its subsidiary Jera Australia to acquire 15.1pc stake in the Scarborough gas for around $1.4bn. This is Jera's biggest investment in any gas field by monetary value. The transaction is likely to be completed in the latter half of 2024, subject to conditions including obtaining permits and approvals. The deal will allow Jera to take up to 1.2mn t/yr of LNG, with the Scarborough gas project aiming to produce 8mn t/yr of LNG at Woodside's under-construction 5mn t/yr Pluto train 2 facility from 2026. Jera plans to secure LNG for around 20 years on an fob basis, basically for its own use. It could consider chartering a new LNG vessel in the future, while leveraging its existing fleet, the company said. Jera has decided to get involved in the Scarborough gas development, as the project is in relatively close proximity to Japan and has already passed its final investment decision in November 2021. The percentage of CO2 in gas in the field is at less than 0.1pc, which has also encouraged the company to invest. Jera will not consider installing carbon capture and storage (CCS) technology in the project. It could purchase carbon credits, if CO2 emissions rise above the baseline set for the project. Jera also agreed on 23 February to buy six LNG cargoes per year (around 400,000 t/yr) from Woodside' portfolio over 10 years beginning in April 2026. The deal is on a des basis, with the price formula undisclosed. Combined LNG quantities in the last two deals account for around 4.6pc of Jera's current LNG handling volumes of 35mn t/yr. It is unclear whether handling quantities would increase in the future, which is dependent on demand, Jera said. But the company sees LNG playing a vital role in Asia to balance stable energy supply, to support economic growth with decarbonisation and back up unstable renewable power output. Jera looked for a new LNG supply source, while the US in late January decided to temporarily pause new licences for gas export . Jera said it is monitoring the US situation, without clearly adding that this has influenced its recent investment decisions. Jera and Woodside also agreed on 23 February to explore collaboration in areas such as ammonia, hydrogen and CCS. More details such as timelines for discussion are yet undisclosed. By Motoko Hasegawa Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Read More
News

India’s Gail seeks to add LNG tanker for US project


02/22/24
News
02/22/24

India’s Gail seeks to add LNG tanker for US project

Mumbai, 22 February (Argus) — Indian state-controlled gas distributor Gail plans to add an LNG tanker to ship cargoes from the US, two persons with knowledge of the matter told Argus . Gail is seeking delivery of the tanker between October 2024 and September 2025 for a minimum period of seven years, which can be extended by another two years, a source in a shipping firm said. The tanker would have a capacity of 159,000m³ to 181,000m³ to transport the fuel from the US. Gail has a term deal for 3.5mn t/yr of LNG from the US' Sabine Pass terminal and 2.3mn t/yr from Cove Point, valid till 2038. The firm currently has four LNG tankers to bring the super-chilled fuel from the US, which includes two-time charter agreements with Japan's Mitsui O.S.K Lines and the rest with NYK Line. The new tanker will help Gail bring more US LNG cargoes to the country instead of swapping cargoes. It will also provide more operational flexibility to the firm, keep its downstream consumers adequately supplied and at the same time reduce supply uncertainty stemming from geopolitical conflicts like the continuing Red Sea tensions. Gail has sold some LNG cargoes sourced from Cheniere Energy's terminal in the Gulf of Mexico to an unnamed highest bidder in Europe, Argus had reported quoting Gail's director of marketing Sanjay Kumar on the sidelines of the India Energy Week in Goa on 9 February. Gail used the proceeds from the sale to source spot cargoes from Gulf countries — shipments which do not have to transit through the Suez Canal to reach India. The firm is likely to issue more LNG tenders to swap US term cargoes with supplies closer to India as cargoes face difficulty in transiting the Suez Canal, Kumar added. The conflict in the Red Sea since December 2023 has disrupted shipping operations as tankers heading to India have been taking the longer route around the Cape of Good Hope. An inability to take the shorter Suez Canal route adds up to seven days in delays for Gail's US LNG shipments to reach the 17.5mn t/yr Dahej LNG import terminal on the west coast of India, Kumar said. Gail offered several LNG cargoes from the Cove Point LNG export terminal in 2017, in order to overcome the problem of a shortage of tankers that could deliver supplies to India. The swap deal resulted in shorter and more efficient deliveries as the swapped cargo ideally would come from a terminal closer to India as compared to the US, and the Cove Point cargo would go to a destination nearer to the US as compared to India. But swap tenders from the US have declined because of availability of four LNG tankers to bring cargoes to India. Gail originally planned to bring all its US cargoes into the country this year, but the conflict in the Red Sea prompted the firm to change tack and issue swap tenders instead, a source with knowledge of the matter said. By Rituparna Ghosh Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

News

Australia’s Santos joins OGCI zero methane initiative


02/21/24
News
02/21/24

Australia’s Santos joins OGCI zero methane initiative

London, 21 February (Argus) — Australian independent Santos has signed the Aiming for Zero Methane Emissions initiative, which seeks "near-zero" methane emissions by 2030 from signatories' operated oil and gas assets. The project, which now has 23 signatories, was launched in March 2022 by the Oil and Gas Climate Initiative (OGCI) — a group of 12 major oil and gas companies. Santos has operations in Australia, Papua New Guinea, Timor-Leste and the US. The company produced 92.2mn bl of oil equivalent in 2023 and has set a target of net zero emissions across scopes 1 and 2 by 2040 for its equity share. The company is also looking to develop three carbon capture and storage (CCS) hubs offshore Australia, which could have a total future storage capacity of up to 35mn t/yr of CO2 — though Santos did not provide a timeframe. Its Moomba CCS project is 80pc complete and the first CO2 injection is expected in the middle of this year. Santos today also formally endorsed a World Bank initiative to eliminate routing flaring from oil operations by 2030. Santos will "will develop and implement plans to achieve its commitment under this initiative", it said. It will also report "flaring and improvement progress" to the World Bank on an annual basis, from 2025. The recent UN Cop 28 climate summit, in November-December 2023, placed scrutiny on oil and gas producers' emissions reduction plans. Companies representing over 40pc of global oil production pledged to cut emissions — including methane to "near zero" by 2030. The summit saw renewed focus on methane emissions , although the frameworks are voluntary. By Georgia Gratton Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

News

Lebanese exploration blocks in limbo


02/21/24
News
02/21/24

Lebanese exploration blocks in limbo

Cairo, 21 February (Argus) — The fate of two exploration blocks offshore Lebanon remains in limbo, with the government yet to agree contractual terms with the consortium that bid for the licences last year, the country's energy minister Walid Fayad said. A consortium consisting of TotalEnergies, Italy's Eni and state-owned QatarEnergy submitted bids to explore Blocks 8 and 10 in October last year as part of Lebanon's second licensing round. The blocks lie on Lebanon's recently delineated border with Israel. The same consortium drilled an exploration well in the adjoining Block 9 in August last year but failed to find any commercial volumes of oil or gas . Speaking on the sidelines of the Egypt Energy Show in Cairo, Fayad said the main issue with the bids for Blocks 8 and 10 relates to timeframes for 3D seismic surveys and drilling decisions. TotalEnergies' insistence on a one-year period to decide whether it would shoot 3D seismic on Block 8 is too long, Fayad said. The government's position is that three months should be more than enough, he added. "For Block 10, they're asking for two years to make a decision whether to drill or not. And we're saying you don't need to, you can do it in one year," Fayad said. "That's why they did not sign." TotalEnergies has yet respond to a request for comment. It is unclear whether there will be any further negotiations for Blocks 8 and 10, both of which have been included in Lebanon's third licensing round launched late last year. Fayad said interest in the latest bid round "has yet to be elicited", which is why he is proactively engaging with companies and countries. "It's an uphill battle," he said. The conflict in Gaza is making it more difficult to create a stable environment for the eastern Mediterranean's oil and gas sector to grow, Fayad said. "It makes risk a lot higher, it makes the financing cost a lot higher, and it makes any investment decision a lot more cumbersome. It is crippling the region," he said. By Aydin Calik Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

News

Japan sees potential for increased summer power demand


02/21/24
News
02/21/24

Japan sees potential for increased summer power demand

Tokyo, 21 February (Argus) — Reduced nuclear availability and firm electricity demand in Japan is lifting the potential for increased consumption of thermal power generation fuels this summer. The Japan Meteorological Agency forecasts a 50-70pc probability of temperatures during June-August 2024 rising above the 30-year average in all parts of Japan. Average temperatures in Japan's major cities, such as Tokyo, Osaka and Nagoya, during June-August 2023 were higher than the long-term average. This implies that the country is likely to face similar summer temperatures as last year. Nuclear power output is projected to fall and boost the country's thermal power demand during summer. The operating capacity of nuclear power plants could fall to an average of 7,562MW during June-August from average actual operating capacity of 9,563MW in the same period in 2023, according to Argus calculations based on data from Japan's Agency for Natural Resources and Energy and notices on the Japan Electric Power Exchange website. Hotter weather across the country in 2023 failed to lift thermal fuel demand, with power demand in Japan's 10 service areas averaging 104.3GW for June-August, down by 1.2pc from the same period a year earlier, according to nationwide transmission system operator the Organisation for Cross-regional Co-ordination of Transmission Operators. The rainy season normally cuts solar output. But sunlight hours were unusually longer in 2023 compared with 2022, which increased solar output and helped curb thermal generation. Continued energy saving efforts also helped to cut electricity use. Japan's LNG consumption for power generation totalled 9.8mn t during June-August 2023, according to the trade and industry ministry. Coal use totalled 26.5mn t, while oil consumption — including fuel oil, diesel and crude — was 57,651 b/d. LPG use was 6,014t. By Nanami Oki and Reina Maeda Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.