The congestion at Panama Canal could be to Europe’s benefit as US liquefied natural gas supplies will largely bypass Asia, says an article published on stripes website.
Logjam Creates Opportunity For European Markets
The congestion at the Panama Canal is reshaping the dynamics of liquefied natural gas (LNG) trade, potentially favoring Europe over Asia. The bottleneck at the canal is affecting the transit of US LNG supplies to key Asian markets, including Japan, Korea, and China.
Navigating The Price Gap
The widening price gap between the Asian spot LNG price and the European gas benchmark has yet to reach a level compelling enough to divert American gas to Asia through longer routes such as the Suez Canal or the Cape of Good Hope. The key determinant lies in securing access to Panama Canal slots, with the potential for lower costs that make shipping to Asia more profitable than to Europe.
Advantage For Europe Amid Atlantic Glut
The surplus of LNG shipments in the Atlantic, leading to lower prices during the heating season, could prove advantageous for Europe. This situation also allays concerns of Asia diverting fuel away from Europe during the winter months.
Evaluating Profitability Metrics
Currently, the price gap between Asian spot LNG and LNG delivered into northwest Europe stands at about $3 per million British thermal units (MMBtu). A margin of $2.40/MMBtu makes shipping a US cargo to northeast Asia more profitable than to northwest Europe.
To make a shipment more economically viable via alternative routes like Suez or the Cape, the price gap needs to be approximately $3.7/MMBtu or higher.
Canal Congestion And Its Causes
The congestion at the Panama Canal is a consequence of a record drought, coupled with projections of continued poor rainfall, severely limiting traffic. While some vessels are paying record-high prices to expedite their journey, others are opting for longer voyages rather than facing extended waiting times.
Implications For LNG Shippers
From December onwards, LNG shippers face heightened uncertainties in securing transit slots, as they lose priority to container vessels. This could potentially lead to a decrease in the number of LNG tankers passing through the canal, with the possibility of reaching zero in January when slot auctions cease.
US LNG Flexibility Vs. Inventory Challenges In Asia
US LNG, unrestricted by destination limitations, can be redirected based on demand and prices. While the congestion cost through the Panama Canal presents arbitrage opportunities, high inventory levels in major LNG import terminals in China and South Korea pose challenges for suppliers in finding willing buyers for their cargoes.
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Source: stripes
