Panama Canal’s Green Ambitions Could be Big Boost for LNG



  • Panama Canal Authority encouraging environmentally friendly ships
  • Sulfur oxide and nitrogen oxide targeted
  • LNG bunkering facilities in region planned

The Panama Canal’s drive to go greener may see LNG bunkering emerge as the biggest winner.

Since January 1, the Panama Canal Authority (ACP) has been running its Environmental Premium Ranking initiative, where ships that reach certain environmental or energy efficiency standards receive extra percentage points per transit, which can improve their position in the waterway’s Customer Ranking System.

The program encompasses both the Environmental Premium Ranking and the Green Connection Award, which was launched in July to recognize canal customers that comply with the highest environmental performance standards set by the International Maritime Organization, according to the ACP.

Under the canal’s new program — which is intended to reward “those who make conscious efforts to reduce greenhouse gas emissions and invest in technology that will make shipping even more efficient” — an LNG-fueled ship gets the highest bump, 20 percentage points per trip.

The reason for that is simple, Panama Canal Environmental Protection Specialist Alexis Rodriguez said.

“LNG ships reduce the sulfur oxide and the nitrogen oxide,” he said.  “That is the new way of doing things.”

There are four areas where ships can qualify for the Panama Canal’s Environmental Premium Ranking program — the Energy Efficient Design Index, the Environmental Ship Index, low nitrogen oxide emissions and using LNG for bunker fuel.

When ships qualify in each area, they can receive 10-20 extra percentage points for each transit of the canal made.

“Vessel by vessel, that’s nothing, but we are talking about the customer who has many ships,” Rodriguez said.

For example, if a shipowner had 20 ships passing through the waterway and each qualified for a 10 percentage point boost per transit, the end result would be 22 transit points instead of 20 in the canal’s Customer Ranking System, which is considered when booking a slot to pass through the canal.

The maritime industry has responded positively to the environmental initiative, Rodriguez said.

“Most of our customers are calling us to find out how to participate,” he said.

According to the ACP, 18 companies have applied to take part in the initiative to date and 158 ships have received various approvals.


The emissions reduction from using LNG instead of conventional bunker fuel can be marked, with as much as a 100% reduction in sulfur oxide and particulate matter, an 85%-90% cut in nitrogen oxide and a reduction of carbon dioxide by up to 25%.

But although LNG may be “the new way of doing things,” it is not quite there yet. Adoption depends on three key factors — whether shipowners can afford the capital expense, the availability of infrastructure, and the price of oil.

Cruise ships were the first to start converting to LNG as bunker fuel and this will be followed by container vessels, as they are looking to offer a greener transport solution, according to one LNG shipbroker.

“Tankers will be the last to go and there will be no conversion happening for any of the tankers,” the shipbroker said. “Tanker owners don’t have the money to order LNG newbuildings.”

The Panama Canal appears to be mainly targeting container and dry bulk ships, which combined made up 48.5% of total canal transits and 63.1% of the canal’s total cargo tonnage in 2016. Crude and products tankers registered a mere 5% of transits and 7.4% of total cargo tonnage the same year.

Depending on the price of oil, tanker owners will be addressing the IMO’s mandate to reduce sulfur in marine bunker fuels to 0.5% sulfur from 3.5%S by 2020 either by installing scrubbers to take the sulfur oxide out of high-sulfur bunker fuel or running their engines on marine gasoil or low sulfur fuel oils.

Yet scrubbers are not considered “future proof,” according to a presentation by Fearnley’s Michael Newman at S&P Global Platts’ 16th annual LNG Conference on February 10, as they take sulfur out of the air and put it back into the water.

In the same presentation, Newman ranked the use of LNG with the use of scrubbers and also marine gasoil for an 8,500 TEU container ship, comparing the total voyage cost with five years of amortization across four scenarios.

In his example, scrubbers rank the most economical, followed by an LNG newbuild container ship, while the use of MGO comes in third and converting the container vessel to LNG ranks last.


There remains a great deal of uncertainty about how shipowners will approach the IMO’s 2020 emissions restrictions.

Among the issues owners are considering are whether refining capacity for low sulfur fuel oil will be adequate to meet future demand, the expense of retrofitting ships with scrubber systems that would reduce emissions from higher sulfur fuel oils, what to do with waste from scrubber systems and the issue of enforcement of emissions restrictions on the high seas, according to a bunker broker.

Mikkel Borresen, vice president of Dampskibsselskabet Norden, a shipping company which operates a fleet of about 238 ships, said the availability for a ship to take LNG bunker fuel would be a primary concern for shipowners and operators.

“Unless we see massive investment in LNG installations around the world, I am afraid the availability of fuel will be a major concern,” he said.

LNG availability near the Panama Canal may not be a concern much longer, as AES is developing an LNG bunkering terminal in Panama.

According to the ACP, a study is underway to investigate the viability of constructing an LNG terminal to service vessels calling at the canal and also the rest of the region.

But LNG infrastructure is expensive to build due to the storage and liquefaction processes involved, sources said.

Gordon Shearer, a senior adviser at Poten & Partners, recently said the typical finance structures do not hold up for the LNG market.

“The linkage between traditional buyers and financiers is eroding,” he said.

Rodriguez said the move to LNG-fueled ships is a logical one and that the maritime industry has ample time to prepare for emissions restrictions that will take effect January 1, 2020.

“With the technologies we have, they have three years to make the improvements,” he said.

Looking further ahead, Rodriguez said the authority intends to make all future canal projects sustainable and that they also help preserve the country’s rainforest, conserve water and also reduce the waterway’s carbon footprint.

“We want to enhance emission reductions and also promote the use of more efficient vessels,” he said.

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Source: Platts


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