Higher Panama tolls may weigh on US LNG shipments

Increased tolls for LNG carriers crossing the Panama Canal are set to raise the cost of deliveries from US liquefaction facilities to Pacific basin demand markets.

The higher tolls approved by the Panama Canal Authority are set to come into force on 1 April 2020 and will result in additional costs of 1-1.8¢/mn Btu for LNG carriers, depending on the vessel size and return leg.

Vessels will be granted a small discount on their ballast crossing if this is completed within 60 days of the laden trip.

Tariffs for return voyages within 60 days range from $791,000 for 160,000m³ vessels to $1.22mn for 260,000m³ Q-Maxes, down from $834,000 and $1.29mn for longer return voyages, respectively.

The toll increases are unlikely to weigh on the volume of LNG passing through the Panama Canal, with the rise a small component to transportation costs from US export projects. The laden leg from the US Gulf coast to northeast Asia via the canal cost about $2.38/mn Btu yesterday, with spot charter rates assessed at $125,000/d.

The average vessel size for US-loaded cargoes in 2019 is 165,000m³, for which tariffs for delivery to the Pacific basin range from $813,000-857,000, depending on when the vessel makes the ballast transit of the waterway.

Liquefaction capacity increases this year and expected commissioning of new trains this winter are likely to raise demand for Panama crossings. From the fourth quarter of 2018 to the third quarter of this year, about 460 US-loaded cargoes passed through the Panama Canal, equating to about 34.2mn t of LNG. And the inter-basin arbitrage has remained tight through much of 2019, with most spot cargoes remaining in the Atlantic basin. A wider arbitrage could further raise demand for Panama crossings.