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Panama congestion raises Europe LPG oversupply risk

  • Market: LPG
  • 21/08/26

Severe congestion at the Panama Canal is pushing increasing volumes of US LPG into Europe, raising the risk of oversupply.

US LPG flows into northwest Europe could climb to a nine-month high in August, with imports potentially running as much as one-third above the average of the previous five months, according to Kpler data.

Around 250,000t of US LPG has been delivered to Europe so far this month, while a further 500,000t is scheduled to arrive during the final 11 days of August.

The increase comes as falling water levels have prompted the Panama Canal Authority to tighten draft restrictions for larger vessels. The maximum draft for ships transiting the Neopanamax locks will be reduced to 48ft on 26 August and to 47.5ft on 3 September.

The restrictions are raising transit costs and encouraging some cargoes destined for Asia to take the longer route around the Cape of Good Hope. Before committing to the lengthier voyage, however, sellers can place volumes into Europe, the nearest major demand centre and the Atlantic basin's largest alternative outlet.

The disruption risks repeating conditions seen earlier this year, when difficulties moving US LPG to Asia, also caused by Panama Canal congestion, forced US sellers to seek alternative outlets and increased supply pressure in Europe.

As the market prepares for tighter restrictions, auction costs for priority canal transit have climbed to more than $4mn, around 40 times the typical level of $100,000. Shipping data also show a growing number of vessels opting for the route around the Cape of Good Hope to reach buyers in Asia.

Europe appears capable of absorbing some of the additional volumes, particularly as maintenance in the North Sea has trimmed supply in the region. But demand has strengthened only marginally since the peak of the summer lull, while pricing indicators point to limited underlying support.

The Amsterdam-Rotterdam-Antwerp (ARA) large cargo propane benchmark has only narrowly tracked crude oil's gains over the past month, suggesting little independent support from improving regional demand. The benchmark's value relative to crude averaged around 51pc in July and has since slipped to about 49.2pc.

Meanwhile, the physical premium to front-month swaps, a key measure of prompt market strength, has moved back into positive territory after trading at a discount in mid-August, when aggressive selling briefly pushed the market into negative differentials. But the recovery has been modest.

The propane assessment has risen by around $60/t from recent lows over the past week, largely bringing it back into line with broader gains across energy markets rather than signalling a meaningful tightening in European fundamentals.


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