From LNG World Shipping

Eastbound containers vs. westbound LNG:  both set record volumes in May

Growing container traffic to the East Coast of the United States and a new liquefied natural gas export business to Asia are driving record volumes through the Panama Canal. In May, a total of 38.1M tons went through the canal, according to the Panama Canal Universal Measurement System. Last month was the third time the Panama Canal has set a tonnage record since work finished on its expansion in 2016.

Jorge Quijano, the Panama Canal’s administrator, told the Wall Street Journal that he expects container volumes crossing the canal to rise an average 5% annually over the next few years.

The containership segment broke its own monthly record in May as well, on 13.8M tons transited by 229 ships. The Ports of New York and New Jersey have not yet released their May numbers, but April’s loaded TEUs were up 8.8% year over year. Savannah set a May record, and the 361K TEUs the port handled made May the second-busiest month ever.

Newly dredged Savannah harbor set a record in May

“The Georgia Ports Authority is on track to have the most successful year in its history, on a number of fronts,” said GPA Board Chairman Jimmy Allgood in a statement. The dredging of the Savannah harbor, allowing Neopanamax ships access, has already been completed, and dredging further upriver is proceeding on schedule. The Georgia Ports Authority is also in the process of constructing up to five ‘inland ports’, drayage facilities linked by CSX rail to the port, across the state.

In May, truckloads outbound from Atlanta were rejected by carriers at a rapidly accelerating rate (SONAR code: otri.atl), which created volatility in the spot market for trucks. Elevated turndowns and prices in the Atlanta market added evidence to our hypothesis that port-related surges in demand will create opportunities for trucking carriers with exposure to the spot market.

We’ve seen evidence that maritime carriers are already shifting capacity to take advantage of the new canal. The total weekly TEU capacity deployed to the Asia-U.S. East Coast rose to 162.3K this month, representing a 10.6% increase from June 2017. Meanwhile, the 2M shipping alliance (Maersk and Mediterranean Shipping Company) announced that they were suspending their transpacific TP1/Eagle service, which stopped at Vancouver and Seattle, probably to firm up rates.

Fueled by U.S. shale production, LNG and LPG getting closer to size of container trade in the Canal

LNG and LPG (i.e., propane and butane) are becoming nearly as important to the canal as the container trade: so far this fiscal year, 37% of the Neopanamax ships that transited the canal carried those oil and gas derivatives, while containerships accounted for 49% of Neopanamaxes.

The growth in LNG and LPG volume is being fueled by the shale oil boom in the United States. Conventional oil plays are essentially just giant underground lakes of crude oil, but in unconventional shale plays, tiny bubbles of various hydrocarbons are locked inside the rock. When the shale is fractured, both oil and natural gas can be recovered.

With $3.00 NatGas in the U.S. and July North Asia spot LNG at $11.60, U.S. natural gas producer/exporters are “essentially printing money”

As American oil production swells, so does the country’s production of natural gas, which has caused the price of natural gas in the United States to decrease more than 25% in the past five years, and, more importantly, caused US spot prices for LNG, quoted at the Henry Hub pipeline in Louisiana, to diverge significantly from prices in Asia.

Today, the Henry Hub spot price for LNG is $2.99 per million BTUs, while last week spot prices for July delivery in North Asia were settling at $11.60 per million BTUs. At this point, US-based refiners of natural gas who can export to Asia are essentially printing money. There are two LNG terminals exporting through the Panama Canal now, Cheniere’s Sabine Pass in Louisiana and Dominion Energy Cove Point in Maryland, and three more in Louisiana, Georgia, and Texas, will begin operation next year.

China’s threat to impose a 25% tariff on US commodities could complicate things. LNG would still be priced competitively after the tariff, but West Texas Intermediate crude oil would be more expensive than Brent. China has bought an average of 330K barrels per day this year, barrels that would have to find a new home in the event of a tariff. U.S. oil exports to China represent about 16% of all oil exported by the US, but only 3.5% of Chinese imported oil.

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