Panama Canal expansion set open 26 June

The extension of the Panama canal will open later this month but the overall impact on the tanker market will be minimal despite larger crude vessels having swifter access to Asia-Pacific.

Opening of the expansion coincides with a period of weak freight markets, shipbroker Gibson noted in a recent report, while weak bunker prices mean that alternative, longer routes remains viable.

The expansion will increase the length of vessels that can transit the canal from 294.3 meters to 366m, while beam will increase from 32.2m to 49m and draft from 12m to 15.24m, according to the IEA's June Oil Market Report.

This means that Aframax vessels will be able to use the canal for the first time, although with a draft of 17m fully laden Suexmax vessels will sit too deep in the water. Light crude or condensate may result in a draft shallow enough for Suezmax vessels, giving easier access to Asia-Pacific markets for US condensate and naphtha exports.

Gibson notes that while US domestic crude production is falling it is unlikely that exporters will see significant gains from the canal, although the IEA says that US product exports to Pacific Latin America and Asia Pacific could rise.

On the Europe to Asia-Pacific route, the canal will face competition from the Suez Canal and the Cape of Good Hope route, while Caribbean crude exporters will have limited fresh opportunities as the weight of Caribbean crude grades will prevent fully-laden Suezmaxes from using the canal.

LPG shipments in Very Large Gas Carriers (VLGCs) and larger LNG tankers will be allowed to transit for the first time, which could have a greater impact on those markets, although weakness in the current freight market and low bunker prices could combine to make the estimated $195k transit fee unviable, both factors encouraging vessels to travel via the Cape Horn instead, the IEA noted.

The expansion could enable larger clean product tankers to take some market share from smaller westbound Medium Range (MR) tankers, the IEA notes.

The main beneficiaries of the expansion are likely to be those industries it was designed to accommodate: the container, car carrier and VLGC markets, with crude and product tankers expected to remain around 5pc of overall traffic, according to Gibson.

Originally scheduled to open in October 2014 at a cost of $5.35bn, the expansion project has been hit by delays and cost overruns because of disputes with the main construction contractor, issues surrounding poor build-quality and a series of national strikes. The final cost is likely to be closer to $7bn.