Posted on November 13, 2024
Canal authorities outline $9B investment plan to double number of containers passing through waterway by 2045
HOUSTON — The global market for liquefied natural gas could face new obstacles if President-elect Donald Trump goes through with his proposed 60% tariff on imports from China, said Ricaurte Vasquez, administrator of the Panama Canal Authority (ACP).
At the third annual Houston International Maritime Conference, Vasquez said an escalation in tariffs between the U.S. and China could disrupt LNG shipments through the canal.
“As an economist and a believer in the free market, tariffs can work in very peculiar ways and introduce some distortions of trade. Fully understanding the impact of tariffs, yes, that’s one of the elements that we believe that could affect LNG trading through the Panama Canal,” Vasquez said during a media roundtable discussion following his keynote address on Friday.
In 2023, China became the world’s largest LNG importer, according to the U.S. Energy Information Administration. Last year, the countries supplying the most LNG to China were Australia (34% of total LNG imports), Qatar (23%), Russia (11%) and Malaysia (10%).
The United States accounted for about 4% of LNG exports to China in 2023, but China is the largest destination for U.S. LNG under long-term contracts, the EIA said.
LNG exports from Texas refineries to China in 2023 totaled over $600 million, according to the U.S. Census Bureau.
Almost all of the LNG exported from the U.S. to China travels from liquefaction facilities in Texas via the Panama Canal. In 2023, LNG traffic through the canal declined about 65% year over year, in part because of a severe drought forcing numerous LNG ships to take alternative routes between the U.S. and Asia.
“LNG vessel traffic through the Panama Canal came down from 355 [in 2022] to 115 last year, so there is a significant number of vessels that that have taken the other route, because charter rates are very low, and also the arbitrage gap in the market allows for the longer route cost to be built in into the system,” Vasquez said.
The Panama Canal Authority hoped to regain LNG vessel traffic between the U.S. and China in 2025, recently launching a new reservation system allowing shippers to lock in slots, according to Reuters.
During his keynote address in Houston, Vasquez provided details of the ACP’s $9 billion investment plan to pave the way for the waterway’s future, including a water conservation strategy in response to the drought.
The Panama Canal currently connects 180 maritime routes that reach 1,920 ports in 170 countries around the world, through which nearly 3% of global maritime trade passes, according to the ACP.
To alleviate the impact of future droughts, ACP is proposing the Rio Indio Reservoir project, which would dam the nearby Indio River. After damming the river, the project would drill a 5-mile mountain tunnel connecting the newly constructed reservoir to Gatun Lake, which supplies water to the canal.
The ACP’s $9 billion investment plan also includes measures to increase the canal’s capacity by 5 million twenty-foot equivalent units annually by 2045, bringing the total to 13.3 million TEUs.
“We expect to deploy about $9 billion in capital investments over the next six to 10 years: That includes the reservoir, that includes diversification, that includes other activities,” Vasquez said. “How relevant is the canal for Texas? Well, to us at the canal, the Gulf of Mexico is essentially the sweet spot of our business. No one, not the Suez Canal, can compete with the Panama Canal delivering or taking products from the Gulf of Mexico to Asia.”
Year to date in 2024, Texas ports have imported and exported 63.5 million tons of cargo through the Panama Canal, accounting for about 23% of total traffic, Vasquez said. Cargo to and from the U.S. represents about 42% of the canal’s transiting traffic this year so far.
“It’s not only what we bring to the Panama Canal from Asia, but now, especially with energy products, what is taken from the Gulf of Mexico to Asia,” Vasquez said. “Of all the ports in Texas, Houston is the port. It is the connectivity that we have with this area of the world. We are relevant not only for Texas, but also what we do here at the Port of Houston.”
The three-day Houston International Maritime Conference, hosted by Port Houston, brought together professionals from across the international transportation and logistics industry for a series of panels addressing key challenges and opportunities impacting the maritime industry.
