The Pana­man­ian gov­ern­ment has em­barked on a US$5.25 bil­lion ex­pan­sion of the Pana­ma Canal.

Orig­i­nal­ly due to be com­plet­ed in 2014, the ex­pan­sion should now be com­plet­ed by 2015.

The project calls for the ex­ten­sive dredg­ing works and dry ex­ca­va­tion of near­ly 50 mil­lion cu­bic me­tres of ma­te­r­i­al, of which 42 mil­lion has al­ready been ex­ca­vat­ed.

The new chan­nel will be built along­side the old one, there­fore more than dou­bling the traf­fic ca­pac­i­ty of the Canal. Ad­di­tion­al­ly, the new chan­nel will be able to han­dle larg­er ves­sels.

To un­der­stand what this means, let us take a look at the rel­a­tive sizes of the old Pana­ma Canal locks and new locks that will be built for the ex­pan­sion. The new locks will han­dle ves­sels with a max­i­mum LOA of 366 me­tres, beam of 49 me­tres, and draft of 15.2 me­tres. This is a sig­nif­i­cant in­crease in ves­sel size and thus a sig­nif­i­cant de­crease in freight costs to get toods to mr­ket through the Pana­ma Canal.

The im­pli­ca­tions of the Pana­ma Canal ex­pan­sion for trade in Phoenix Park Gas Proces­sors Ltd's (PPG­PL) mar­kets are nu­mer­ous. PPG­PL's main com­peti­tor for mar­ket share in the Caribbean and Cen­tral Amer­i­can re­gion is the Unit­ed States Gulf Coast.

With large vol­umes of nat­ur­al gas liq­uids (NGLs) be­ing pro­duced in the US from shale de­posits, there is an ex­pand­ing surge of liq­ue­fied pe­tro­le­um gas (LPG) ex­ports (par­tic­u­lar­ly propane) in­to the mar­ket. So far, the ma­jor­i­ty of these vol­umes have gone to Latin Amer­i­ca and to Eu­rope, but the ex­pan­sion of the Canal could change that.

Ma­jor US ex­porters are un­der­go­ing large ex­pan­sions, with a strate­gic fo­cus on cap­tur­ing the mar­kets in the Far East that will now be ac­ces­si­ble via large ships. Car­goes that would have tak­en more than 40 days to reach Japan and Chi­na will now take ap­prox­i­mate­ly 25 days through the Canal, en­abling the US Gulf Coast ex­porters to com­pete more ef­fec­tive­ly with North Sea and Mid­dle East ex­porters.

As the US eyes these large ship mar­kets with po­ten­tial­ly lu­cratikve net­backs, one may very well find that there is a short­age of small car­goes avail­able for the Caribbean and Cen­tral Amer­i­can coun­tries.

This leaves a niche mar­ket for PPG­PL, as the com­pa­ny has built its busi­ness around the sup­ply of its neigh­bour­ing mar­kets with small car­goes of LPG. Scarci­ty of small car­goes will en­able PPG­PL to ben­e­fit as it can at­tract high­er pre­mi­ums.

With the ma­jor­i­ty of LNG car­ri­ers be­ing too large to ac­cess the cur­rent Pana­ma Canal locks, there is an even greater ef­fect of the ex­pan­sion on LNG trade. Again, the US stands to gain if the fore­cast­ed US LNG ex­port in­dus­try comes to fruition.

As a con­se­quence, T&T will im­me­di­ate­ly ben­e­fit as the jour­ney to the Far East mar­kets will be prac­ti­cal­ly halved. T&T's LNG ex­ports will be­come even more com­pet­i­tive in those mar­kets that could re­sult in a huge ben­e­fit to the coun­try.

In sum­ma­ry, the ex­pan­sion of the Pana­ma Canal will open up the large ves­sel LNG and LPG trade for ex­porters like T&T on the At­lantic side to sup­ply the Far East-con­sum­ing na­tions, like Japan and Chi­na.

It is an op­por­tu­ni­ty that the US is cer­tain­ly prepar­ing for, and we would be wise to do the same.

Matik Nicholls, vice-pres­i­dent, mar­ket­ing

Phoenix Park Gas Proces­sors Ltd

Phoenix Hub newslet­ter (Jan­u­ary-March 2013)

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