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September 2021

Panama congestion bodes well for VLGC demand

LPG vessels have been frequent callers at the Panama Canal’s new locks since they were opened in the second quarter of 2016. Between January and August 2021, around 25% of the total transits through the new locks were by LPG vessels, second only to container vessels. Although the share of LPG vessels transiting through the new locks declined year-on-year, the absolute number of transits increased from 549 transits to 563 transits during the same period as overall traffic recovered following last year’s slowdown due to Covid-19.

The average waiting time at the new locks doubled from around five days (cumulative for southbound and northbound voyages) for vessels without prebooked slots in the first half of 2020 to around 10 days in the second half of 2020. Year-to-date waiting times have averaged more than 12 days for vessels without prebooked slots.

One of the biggest reasons with the increased waiting time for unreserved vessels has been a significant increase in container and LNG vessel traffic through the new locks. According to available data for oceangoing vessels through the new locks of Panama Canal, container vessel traffic increased 16% year-on-year to 1,060 recorded transits. LNG vessel traffic increased 39% during the same period to 352 transits. LPG vessel traffic through the new locks recorded a rise of 3% year-on-year. Other vessel segments, such as clean tankers, dry bulk vessels, refers, vehicle carriers, etc., recorded an increase of 7% year-on-year to 314 transits.

Panama Canal traffic through new locks

Not only has uncertainty over waiting days affected vessel scheduling, it also has a significant bearing on vessel supply-demand balance, and thus on the freight markets. Roughly three-quarters of the cumulative LPG export volume from the US Gulf and East Coast were shipped onboard VLGCs, and around half of the volume onboard VLGCs transited through the new locks of Panama Canal in 2020. The ratio remains almost unchanged so far this year.

An analysis of the VLGC requirements and the impact of Panama Canal delays indicates that waiting times will continue to have a large impact on vessel supply/demand. LPG exports from the US may require around 163 VLGCs in 2021 in the base case scenario, up 12% y-o-y. Exports via the new locks of Panama Canal itself may require around 98 VLGCs, up 24% y-o-y. This assumes average waiting time of around 12 days (cumulative for southbound and northbound voyages) (as shown in the middle chart on next page “12 days”) at the new locks.

VLGC demand for US LPG exports may increase further to 172 VLGCs in 2022 and to 180 VLGCs in 2023, in the base case projection scenario. However, if the waiting time at the new lock declines to two days (cumulative for southbound and northbound voyages) (as shown in the middle chart “2 Days”) for the 2021-2023 period, VLGC demand may decline to 150 vessels in 2021, which may increase to 165 vessels in 2023.

Panama Canal waiting days at new locks

Panama Canal waiting days at old locks

However, if the waiting time at the lock increases to 25 days, VLGC demand to ship out LPG from the US LPG volumes may increase to 180 vessels in 2021, 191 vessels in 2022 and to as high as 199 vessels in 2023. However, at such a high waiting time to pass through the Canal, owners may most likely prefer to divert their vessels via Cape of Good Hope or via Suez for delivery into Asia-Pacific region!

These results are based on a base case projection scenario which assumes around 49 MMt of LPG exports from the US in 2021, with around 86% shipped out from the US Gulf, 12% from the East Coast, and the rest from the West Coast. Poten expects US exports to increase to around 52 MMt in 2022 and around 54 MMt in 2023. The share of volume shipped out from the US Gulf, the East Coast and the West Coast remains unchanged throughout the projection period.

Panama Canal waiting time and VLGC demand

Around 78% of total volume exported from the US Gulf and the East Coast is expected to be shipped onboard VLGCs, of which around 53% is expected to be shipped via the new locks. LPG exports from the US West Coast are not expected to pass through the Panama Canal. However, almost 90% of the volume shipped out from the West Coast is expected to be moved onboard VLGCs.

The Panama Canal Authority (ACP) made a few key changes to the pre-booking rules on the last day of 2020. It announced that it would accept booking requests only from neopanamax container and passenger vessels during Booking Period 1 with effect from January 4, 2021. Similarly, booking requests for neopanamax container, passenger, and LNG vessels only would be accepted during Booking Period 1.a. All other vessel segments would be able to apply for slots at the opening of Booking Period 2. Changes in the booking rules meant neopanamax VLGCs were no longer eligible to pre-book in the Booking periods 1 and 1.a and could only apply for pre-booking slots 14 days prior to the requested transit dates.

While major owners/operators had already pre-booked a significant portion of the Period 1 slots available for VLGCs for 2021, which helped them wither the impact of rule changes so far this year, a major concern for LPG shipowners/operators remains the uncertainty over waiting time at the new locks.

US LPG exports

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