Panama Canal Expansion Increases Propane, Butane Exports From Gulf
Other petroleum flows through the canal, including U.S. Gulf Coast exports of distillate and motor gasoline to destinations on the west coast of Central and South America, have changed little. In June 2016, the Panama Canal Authority, the panel that operates the canal, opened a third set of locks that facilitated transits of larger ships, the first such expansion since the canal was completed in 1914.
Most of the petroleum transiting the Panama Canal travels southbound from the Atlantic Ocean to the Pacific Ocean. Flows of HGL are the largest single petroleum commodity, according to data from the Panama Canal Authority. In 2018, about 387,000 bbld transited southbound through the canal, followed by 266,000 bbld of distillate and 230,000 bbld of motor gasoline.
Before 2016, the main constraint for rising U.S. exports of HGL to meet growing demand in Asia was export infrastructure on the U.S. Gulf Coast. By 2016, more infrastructure was added, with the size limitations of the original Panama Canal locks and the costs associated with alternative shipping routes as the remaining constraints for increased exports.
The most economical mode of transporting large volumes of HGLs by water is on very large gas carriers (VLGCs). The most economical route from the U.S. Gulf Coast—where most HGL export capacity is located—to Asia is through the Panama Canal. However, most VLGCs were too large to transit the original set of canal locks. This size constraint, combined with the costs of longer voyage times on alternative routes, resulted in ship-to-ship transfers in the waters around the canal for U.S. propane exports headed to Asia.
Following the canal’s expansion, VLGCs could transit the larger set of locks and resulted in an approximate 173%, or 293,000-bbld, increase in southbound transits of HGL cargos from 2016 to 2017. This growth coincided with a rise in HGL exports from the U.S. Gulf Coast—Petroleum Administration for Defense District (PADD) 3—to destinations mostly in Asia. These increased exports likely transited the Panama Canal. In 2018, four of the five largest destinations for Gulf Coast HGL exports were in Asia, with Japan heading the list at 280,000 bbld.
Aside from HGL flows, large volumes of the southbound Atlantic-to-Pacific petroleum shipments are related to export flows from the U.S. Gulf Coast to their destinations on the West Coast of Central and South America, such as El Salvador, Ecuador, Peru, and Chile. In 2018, the Gulf Coast exported 210,000 bbld of distillate to these four countries. Since these flows likely transited the Panama Canal, they represent about 79% of last year’s southbound distillate canal flow.
Although the Gulf Coast exports some HGL to these four destinations, the volumes, 71,000 bbld, accounted for just 18% of total southbound canal flows for HGL in 2018. For motor gasoline, the Gulf Coast exported a total of 60,000 bbld to El Salvador, Ecuador, Peru, and Chile last year. This total represented a little more than one-quarter of all southbound motor gasoline canal traffic for the year.
Despite accounting for large shares of the petroleum that transits the Panama Canal, Gulf Coast exports to El Salvador, Ecuador, Peru, and Chile account for a small share of total Gulf exports. Exports to the four countries combined account for 18% of PADD 3 distillate exports, 7% of motor gasoline exports, and only 6% of HGL exports.
Although U.S. crude oil exports have been rising, up to 2 MMbbld in 2018, the most commonly used vessels to transport crude are too large for the Panama Canal. This restriction will likely limit flows of oil to destinations such as Chile and Peru. They received a combined 19,000 bbld of U.S. crude oil in 2018. Instead, increasing exports are more likely to arrive at destinations in Asia via the Suez Canal or around the southern tip of Africa to locations in Europe using trans-Atlantic routes. Future petroleum flows through the Panama Canal are likely linked to expanding petrochemical demand for HGL in Asia; economic growth in El Salvador, Ecuador, Peru, and Chile; and continued growth in U.S. petroleum product exports.
(SOURCE: The Weekly Propane Newsletter, April 22, 2019)
OUR DIGITAL PARTNERS