Panama Canal expansion opens more opportunities in LNG market

The successful completion of the $5.4 billion Panama Canal expansion project, which will reduce travel time and lower costs for shipments from the Gulf Coast to markets in Asia, will help open up more opportunities for the Asian Liquefied Natural Gas (LNG) market, which compete for market share with Nigeria.

Nigeria’s existing long-term LNG contracts however reduce the impact of US speed to market advantage.

The canal expansion includes a third lane that will accommodate LNG ships with capacity for up to 3.9 billion cubic feet (bcf) of fuel. The canal has enlarged its locks that are 180 feet wide and 60 feet deep, compared with the 110-foot wide and 42-foot deep 1914 canal, according to a report from the US Energy Information Administration released June 30.

As a result of the expansion, voyage time from the US Gulf Coast will be reduced from 34 to 20 days around Africa or 31 days through the Suez Canal. It will also cut travel time to China from 20 days to eight or nine days, and to Colombia and Ecuador from 25 days to five days.

“The reduced travel time and transportation costs for LNG shipments could help United States natural gas exports to northern Asia. With the United States’ natural gas economy growing to the world’s third-largest LNG producer by 2020, the expansion could be a new favourite route,” reports the US Army Corps of Engineers.

EIA estimates that US LNG traffic through the canal could exceed 550 vessels annually, or one to two vessels per day by 2021.

Nigeria sells over 50 percent of its LNG to Asia markets as the discovery of shale gas in the United States significantly cut demand for Nigeria’s LNG hence the focus on Asian markets.

From 1999 to 2008, Nigeria exported 35 percent LNG to the US, while 65 percent went to Europe. But in the last ten years, export to US has been around one percent.

“Japan is one of our highest markets,” said Babs Omotowa, NLNG managing director, while announcing results for the 2015 financial year. “Overall in Asia, we do about 48 percent of our sales while 52 percent to Europe. The United States gets less than one percent.

 “The expansion project will have no real effect on Nigeria’s LNG exports because the market is mainly long-term based,” said Victor Eromosele, CEO, M.E. Consulting Limited.

However industry operators say that with some NLNG long-term contracts expiring soon, it would be pragmatic to start making contingency plans.

While most LNG fleet are long-term based, analysts say spot markets are growing, as US gas fails to meet global demands.

Nigeria has failed to grow its market share due to delays in final investments decisions on three LNG projects worth over $37 billion: Olokola LNG ($10bn), Brass LNG ($15bn), and the Nigerian LNG Train 7($12bn).

Olokola LNG project with a 12.6 metric tonnes capacity was stalled because the international oil companies (BG, Shell and Chevron) withdrew from the project. The10 million metric tonnes annual Brass LNG project ran into troubled waters when ConoccoPhillips withdrew from the project in 2013. NLNG train 7 has been in the works for years.

NLNG currently operates six trains capable of producing 22 million tonnes per annum (mtpa) of LNG, and 5mtpa of NGLs (Liquefied Petroleum Gas [LPG] and Condensate) from 3.5 Billion (standard) cubic feet per day (Bcf/d) of natural gas intake.

According to NLNG, between 1999 and 2014, Nigeria received $24billion in revenue and dividends from its operations in Bonny Island. $13 billion of the amount was earned as dividend for Nigeria while $11 billion was the proceeds from sale of feed gas. Last year, Nigeria earned about $3.2 billion from its LNG operations.