The Panama Canal Authority (PCA) is taking strategic steps to attract U.S. liquefied natural gas (LNG) vessels back to its route, aiming to capitalise on rising demand in Asian markets. This follows a reported 65% decrease in LNG transits through the canal, as U.S. exports pivoted towards Europe after the Ukraine conflict disrupted global gas flows. Contributing factors included significant delays and high costs linked to the canal’s operations amid an ongoing drought, which prompted many vessels to opt for lengthier, alternative routes around South America.
Historically, the Panama Canal has provided the shortest path for U.S. LNG shipments bound for Asia, a market that has seen rapid growth in countries like Japan, China, South Korea, and India. However, stricter transit limits due to drought, combined with high fees, led exporters to reconsider their routes, bypassing the canal in favour of Cape Horn despite the extended journey time. Ricaurte Vazquez, the canal’s administrator, confirmed this substantial decline in LNG traffic.
In response, the PCA introduced a new long-term reservation system designed to offer shippers greater reliability. From January, this system will allow LNG operators to secure passage slots up to a year in advance, alleviating concerns over canal congestion. The initial slot auction, which raised $394 million, highlights the industry’s interest in dependable passage options. Additionally, shorter waiting times and improved slot allocations are planned, particularly for vessels arriving without reservations.
Despite the recent challenges, experts, including Cheniere Energy’s Anatol Feygin, are optimistic about the canal’s role in Asian LNG trade. Feygin noted that while canal transit fees are high, improved slot availability and reduced delays could make the route economically viable as Asian demand for LNG grows. The PCA is also preparing for future capacity expansions, anticipating the arrival of larger LNG vessels and new storage units, which will further support its competitive edge.
