The photo is sourced from Jiangnan Shipbuilding
Among the indicators of the Panama Canal’s capacity is the number of slots available to operators of maritime vessels, including gas carriers of VLEC (Very Large Ethane Carrier) and VLGC (Very Large Gas Carrier) classes, which are used to transport ethane and liquefied petroleum gases (LPGs). The base rental rate for one slot is $100,000, although these costs are offset by lower fuel costs. The EIA estimates that gas carrier owners spend an average of $20,000 to $35,000 per day on fuel, depending on the type of ship engine. It should be noted that the transit of LPGs to Japan through the Suez Canal takes an average of 27 days, whereas it takes 44 days for transit through the Suez Canal and the Bab-el-Mandeb Strait, and 48 days for transit through the Cape of Good Hope.
The revival of transport through the Panama Canal has coincided with a reduction in the transit of raw materials across the Red Sea. LPG exports from the United States to Japan through the Suez Canal adjacent to the Red Sea have gone from 374,000 barrels per day (bpd) in November 2023 to 179,000 bpd in December 2023 to 29,000 bpd in January 2024. At the same time, the total export of propane (one of the most common types of LPGs) from the United States in January 2024 decreased by just 70,000 bpd compared to December 2023 (1.71 million bpd versus 1.78 million bpd).
The increase in traffic through the Panama Canal has also caused a reduction in freight rates: the cost of chartering VLGC class carriers on the route from Houston to the Japanese port of Chiba has gone from $221 per ton in January 2024 to $100 per ton in mid-February 2024. This dynamic is directly related to the reduction in the duration of LPG transportation and a greater availability of gas carriers as a result.
In recent years, the United States has been ramping up its LPG exports owing to, in part, the shale revolution, which has facilitated access to raw materials for the production of liquefied petroleum gases. According to the EIA, propane exports from the United States have gone up from 119,000 bpd in 2012 to 1.3 million bpd in 2022. This significant increase was related to, among other things, a rise in final demand for petrochemicals, one of the fastest-growing segments of the oil market. According to the Energy Institute, the share of petrochemicals in the global structure of final demand for oil in the period from 1982 to 2022 rose from 11% to 22% (from 6.2 million bpd to 21.2 million bpd, respectively).
