(Newsroom Panama) The expansion of the Panama Canal is going to reshape the US port infrastructure and ship movements. Good for some, bad for others.
And among the receivers of the ”good” will be Panama with the potential to double the number of transits following a time when new records have already been set, and are predicted to continue in 2012. The Canal expansion is scheduled to finish in 2014.
More like this will pass through the canal
The following analysis, shared by many in the shipping industry, comes from Tom Sosnowski, oil market editor at McGraw Hill in the US.
The $5 billion canal expansion includes making the canal wider and deeper and creates another set of locks, among other improvements. With that expansion, larger ships, such as VLCCs and LPG carriers, as well as bigger container ships, will be able to transit the canal.
In the past, the depth and width of the canal locks precluded any ship larger than the Panamax size vessel from transiting the route. A Panamax has a capacity of about 500,000 barrels of crude, while larger ships such as a VLCC can carry up to 2 million barrels.
Also, the number of ships transiting the canal has the potential to double, as two-way traffic will be possible. Currently, the canal run north to south for 12 hours, then reverses for 12 hours.
So what does this mean for the US?
It certainly means the de-emphasizing of US West Coast routes to and from Asia, not the ones carrying oil, but the ones bringing cars and televisions and other goods. Larger vessels that would typically call on West Coast ports and then have their off loaded cargoes shipped out to the rest of the US via rail or truck, will now be able to transit the canal and bring goods and products closer to their final destination.
For instance, instead of a vessel calling on Los Angeles and unloading goods that would travel across the country via the US intermodal system, cargoes could steam through the canal and deliver goods to New York or Houston or Miami.
This means the West Coast bunker market, particularly Los Angeles/Long Beach and Seattle, would see a drop in demand. According the port data from their respective authorities, 11 million Ton Equivalent Units, which are 20-foot equivalent containers, moved through Long Beach and Los Angeles in 2010. With the option to bypass the West Coast and transit the canal, ship traffic could drop and so would the demand for bunker fuel in the ports.
At this year’s Platts Bunker and Residual Fuel Conference inJune, one West Coast bunker supplier said the Canal expansion would “kill the [bunker] market” in that region. No one really can put a number on how much bunker fuel is consumed today or what kind of drop could be expected, but West Coast suppliers agreed it would be substantial.
The West Coast’s loss in bunker sales will benefit other ports. There will be no loss in overall bunker demand, just a reorganization of where the fuel is sold.
As for other oil shipments, large crude and products cargoes could transit from Asia and deliver right to the US refining center in the US Gulf Coast. This would also eliminate the route around South America and shaves six days off the Asia to US Gulf route. A shorter route makes the voyage cheaper and could make for more arbitrage opportunities.
Taking a look at the latest import report from the US Energy Information Administration, broken down by ports, exporter, company of record on the imports side, it shows few imports into any Texas or Louisiana ports from Asia, mostly some lubricants and naphtha from South Korea. A widened canal could change that.
Infrastructure improvements would also be needed in US ports and harbors. The US network of ports is generally shallower ports, less than 40 feet deep. On the US Atlantic Coast, for example, there are only two true deepwater ports to take the largest ships on the water. One is in Riverhead, NY, and the other is in Norfolk,Virginia. Other ports would need extensive dredging by the Army Corps of Engineers. And with the financial condition of many government entities, there may not be any money for these projects.
One dilemma for Houston is the Houston Ship Channel. The channel is 40 feet deep and has infrastructure beneath it which would make digging deeper prohibitive.
The solution in Houston may be more vigorous lightering operations. Large ships come in, the cargo gets broken down onto smaller vessels, and products arrives at port. One shipowner based in Houston said back in June that lightering could be big business in the future.
In the end, traditional shipping and port operating fundamentals are going to be reinvented when the expanded canal become fully functional.