More LNG carriers taking US cargoes to Northeast Asia are avoiding the Panama Canal in light of tightening restrictions on the route, shipping data shows, with the number of ships using the Suez Canal route looking set to continue rising for the upcoming high-demand winter period despite the recent seizure of a vessel in the Red Sea, says an article published on sp global website.
Panama Canal Restrictions Prompt Route Diversions
The growing trend of U.S. LNG carriers avoiding the Panama Canal is a response to tightening restrictions, driven by a historic drought. Despite these limitations, the number of LNG carriers utilizing the Suez Canal route is expected to rise during the upcoming high-demand winter period.
Strategic Moves By Key Players, SM Eagle And Hyundai Princepia
Chartered by Korea Gas Corp., the SM Eagle is charting an alternative course via the Caribbean and the Suez Canal. This follows the Hyundai Princepia, another Kogas-chartered LNG carrier, indicating a deliberate shift away from the Panama Canal due to escalating restrictions.
Impact Of Panama Canal Slot Reduction
The reduction in booking slots for Neopanamax vessels, including LNG carriers, is a significant development. With slots decreasing to five per day from January 1, 2024, the S&P Global analysts predict a substantial impact on laden LNG traffic from the United States, limiting it to 15 crossings per month.
Alternative Routes, SK E&S And Maran Gas Andros
South Korean LNG importer SK E&S’s Prism Brilliance is choosing the Suez Canal, emphasizing the importance of stable supplies during winter. Similarly, the Maran Gas Andros, chartered by Japan’s JERA, is sailing towards Japan via an undisclosed route, adding complexity to the shifting LNG shipping landscape.
Suez Canal Risks Amidst Middle East Conflicts
The potential for maritime disruptions or a war risk premium on Suez Canal transits is underscored by recent events, including the seizure of the Galaxy Leader in the Red Sea. LNG importers in Northeast Asia are carefully assessing the associated risks, prompting considerations of alternative routes.
Profitability Challenges And Freight Costs
Despite the destination flexibility of U.S. LNG cargoes, current freight rates favor sending LNG to Northeast Asia through the Panama Canal. The higher costs associated with longer routes via the Suez Canal or the Cape of Good Hope present challenges, impacting the arbitrage opportunities.
Strategic Considerations By Japanese And South Korean Lifters
Japanese and South Korean lifters of U.S. LNG are actively considering the Suez Canal as an alternative trade route for their winter cargoes. This strategic shift is in response to the Panama Canal Authority’s decision to reduce daily vessel transits until at least February 2024.
Freight Dynamics, Duration And Cost Implications
The extended shipping duration via the Suez Canal and the Cape of Good Hope, compared to the Panama Canal, presents challenges for the profitability of U.S. LNG cargoes. Despite the higher freight costs, Asian and European demand during the winter season continues to influence the evolving LNG shipping dynamics.
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Source: sp global
