Tag Archives: Oil Tankers

Panama Canal is a Pinch Point for US Energy Shipments

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The continuing drought in Panama has caused the Panama Canal Authority to restrict traffic to smaller and smaller vessels. The critical variable is the draft of the ship. The water in Gatun Lake which feeds the locks is getting shallower with the drought. Traffic is down to 60 % of capacity at present and is expected to drop to 45 % by early next year.

The most affected US traffic are those going between the Gulf of Mexico and Asia-Pacific ports. This has also intensified the bidding war for smaller tankers able to make the Panama Canal transit, increasing transportation rates and lengthening shipping times.

Some companies are opting to send their ships through the more expensive Suez Canal. This adds 10 days to a voyage in some cases.

This transportation bottleneck is also negatively affecting US liquified petroleum gas (LPG) and natural gas liquids (NGL). According to the US Energy Information Agency (USEIA), Asia accounts for 53.8 % of US gas liquids shipments abroad this year at 2.6 million barrels per day. Compounding the problem, vessels carrying gas liquids have lower priority than larger vessels paying larger tolls. Ships can bid to cut in line but the prices are steep, up to $2.5 million for an LNG tanker and $100k to $500k for medium sized tankers.

Oil Tanker Shipments

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The Energy Information Administration (EIA) is a primary source of data relating to global petroleum and distillate use. It follows production, transport and prices. In addition to supplying data, they provide some interpretation of the global picture. There is so much BS circulating about fuel costs that a credible source of information is welcome.

Oil tankers come in two varieties- clean and dirty. A clean tanker hauls low-sulfur distillates. A dirty tanker hauls crude oil. Since the invasion of Ukraine, tanker shipments from Russia to the west have fallen off and longer voyage shipments have increased. This has increased the cost of transport and floating storage of petroleum and distillates. In the time between February 2022 and November 2022, Very Large Crude Carrier (VLCC) rates from the Middle East to the US Gulf Coast (USGC) have more than tripled. The rates from USGC to Rotterdam have increased from $8.00 to more than $27.00 per metric ton. Rates of shipments on Suezmax ships have also tripled. Dirty tanker rates from Russian ports in the Baltic and Black Sea have gone up due to increased insurance rates. Also, add to all of this the increased cost of bunker fuel for longer voyages.

Shipments of LPG (propane) have been delayed by long waiting times for passage through the Panama Canal. Congestion at the Neopanamax locks has led to increased scarcity of Very Large Gas Carriers (VLGC). Propane is both a fuel and an industrial feedstock. Propane is dehydrogenated to propylene and used for the production of polypropylene. Propane is also a fuel whose demand is highly seasonal with greatest demand in the winter months. VLGCs in the Middle East are drawn out of the area by better rates in the US, creating scarcity there.