Panama Canal expansion could facilitate oil flows to Asia

A $5.25 billion expansion of the Panama Canal could increase shipment of South American crude to Asia, especially as Venezuela has agreements with Japan and China to boost exports to the region.

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, Apr. 23 -- A $5.25 billion expansion of the Panama Canal could increase shipment of South American crude to Asia, especially as Venezuela has agreements with Japan and China to boost exports to the region, said an official with the Panama Canal Authority.

Today mostly regional cargoes of crude and petroleum products from Venezuela, Colombia, and the Caribbean move to the canal to the west coast of the Americas aboard Panamax vessels, the maximum size allowed by present locks.

The waterway is being expanded and new locks built under a project due to be completed in 2014. As a result, vessels with beams as long as 49 m will be able to transit the canal, and the maximum draft will increase to 15 m.

"With these dimensions, we expect to see Aframaxes and Suezmaxes transiting with cargo," Silvia de Marucci, an official with the authority, told Business News Americas. "In ballast, we could expect to see even [very large crude carriers] to be repositioned in other markets when necessary or in a return leg to reload."

Whether or not sending crude through the canal en route to Asia makes economic sense will depend on market conditions including bunker prices, time charter rates, canal tolls, and crude prices.

The 9,286 nautical mile voyage from Maracaibo in Venezuela to Shanghai, for example, would take 28 days at 14 knots passing through the canal, a saving of 20 days from routes that would use the Suez Canal or Cape of Good Hope.

"All these drivers will determine the route to be selected, but the point for us is that there will be an additional route choice once the third set of locks is ready," De Marucci said.

"As trade moves farther south, passing the point of Belen in Brazil, the Panama Canal loses competitiveness vs. the Cape of Good Hope in the route to Asia, so we don't foresee any cargoes from Brazil," De Marucci added.

Panama also is taking other action to become more active in the shipment of crude and products.

Panamanian company Petroterminales de Panama SA is reversing the transisthmian pipeline and building storage tanks for different qualities of oil on both ends. The pipeline runs from the Pacific to the Atlantic to carry Alaskan oil to the Gulf of Mexico and the US East Coast, but will start running from the Atlantic to the Pacific in September of this year.

Occidental Petroleum Corp. and Qatar Petroleum plan to build a refinery on Panama's Pacific Coast. "The project is coming along very slowly, but it is there," said De Marucci.

"In addition, we have also identified LNG as potential trade, which nowadays does not use the canal because of vessel dimensions," De Marucci said, adding, "LNG vessels are perfect for the canal because a large part of the fleet will fit through the new locks, including their draft, as LNG is rather light."

Contact Eric Watkins at hippalus@yahoo.com.

More in Pipelines & Transportation