Until recently, the Panama Canal was at the center of a dispute about an expansion project that ran $1.6 billion over cost. Today that dispute appears settled, which means sharp-eyed energy investors have reason to celebrate – and not just because the canal is celebrating its 100th birthday.
Currently, the canal can only handle ships that are 965 feet long and 106 feet wide, which means the vast majority of liquefied natural gas (LNG) carriers are too big to pass through.
But the expanded canal will be able to accommodate ships 1,200 feet long and 160 feet wide, allowing 90% of all LNG carriers to pass between its walls. That’ll prove greatly beneficial to the United States, which plans to export LNG from the Gulf Coast to Asia.
Exactly how beneficial will this change be? The Panama Canal Authority stated last year that trips to East Asia from the Sabine Pass facility in Louisiana – owned by Cheniere Energy (LNG) – will be cut from 63.6 days to just 43.4 days.
This should greatly improve the competitive position of LNG exports, as shorter transport times will make LNG cheaper for Asian buyers.
In fact, transportation costs are expected to drop by nearly a quarter for East Asian importers, which should leave those energy-hungry buyers salivating.
Panama Canal Boost to Bottom Line
The biggest beneficiaries of the expanded canal will be the LNG shipping companies that have already jumped on the opportunity.
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Take the Freeport LNG project, in which ConocoPhillips (COP) is involved. Asian buyers have already purchased two-thirds of its planned output.
Another company set to benefit is Teekay LNG Partners (TGP). Teekay announced last summer that it signed a five-year contract with Cheniere to transport LNG from the Sabine Pass facility.
In fact, Teekay is having at least four new LNG vessels built, with the possibility of five more. The company specifically stated that the delivery of these vessels is intentionally timed to coincide with the opening of the expanded Panama Canal.
Meanwhile, another major LNG shipper, Golar LNG (GLNG), is adding to its existing fleet with new vessels to be built over the next few years – also to coincide with the Canal expansion, no doubt.
Investors should look for similar LNG shippers that are taking advantage of Asia’s thirst for LNG and the new Panama Canal logistics.
And “the chase” continues,