In June 2016, the Panama Canal opened a third set of locks that enabled transit of larger ships, the first such expansion since the canal was completed in 1914. In the years since the canal was expanded, the largest change in petroleum flows through the canal has been the rise of hydrocarbon gas liquids (HGL), especially propane, from the US Gulf Coast to destinations in Asia, EIA informs.
Most of the petroleum transiting the Panama Canal travels south from the Atlantic Ocean to the Pacific Ocean. Flows of HGL are the largest single petroleum commodity transiting the canal, according to data from the Panama Canal Authority. Namely, in 2018, about 387,000 barrels per day (b/d) of HGLs moved southbound through the Panama Canal, in comparison to 266,000 b/d of distillate and 230,000 b/d of motor gasoline.
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Before 2016, the main constraint for growing US HGL exports was export infrastructure on the US Gulf Coast. By 2016, the addition of Gulf Coast export infrastructure mitigated this constraint, and the size limitations of the original Panama Canal locks, and the costs related with alternative shipping routes became the main constraints for increased exports.
The most economical way of transporting large volumes of HGLs by water is with Very Large Gas Carriers (VLGC). The shortest route from the US Gulf Coast to Asia is through the Panama Canal. However, the original set of Panama Canal locks were too small to enable most VLGCs to transit, so ships had to transfer cargo to smaller ships that could transit the canal, a process known as ship-to-ship transfers for US propane exports destined for Asia.
After the canal’s expansion, VLGCs are able to transit the larger set of canal locks. The increase in HGLs transiting the Panama Canal came at the same time with an increase in exports of HGLs from the US Gulf Coast to destinations mostly in Asia. In 2018, four of the five largest destinations for US Gulf Coast exports of HGLs were in Asia, with Japan being the largest at 280,000 b/d.
In addition, according to EIA, export data show the destination of the products but do not provide information about the route. For some destinations the route can be assumed: exports leaving the US Gulf Coast for destinations in Europe most likely transit the Atlantic Ocean.
Exports from the Gulf Coast to ports on the Pacific Coast of Central and South American countries likely go through the Panama Canal. Nonetheless, for destinations in Asia, ships have many options: through the Panama Canal, through the Suez Canal, or around the southern tip of Africa.
Destinations on the Pacific Coasts of Central and South American countries such as El Salvador, Ecuador, Peru, and Chile received 382,000 b/d of crude oil and petroleum products from the US Gulf Coast in 2018. This volume represented about 36% of the total 2018 southbound petroleum flow of petroleum products through the Panama Canal. What is more, for some products, the Gulf Coast’s volume share is much larger. Namely, US Gulf Coast exports of distillate destined to El Salvador, Ecuador, Peru, and Chile made up 79% of all southbound distillate flow through the canal. For jet fuel, the share was 76%.
The most commonly used ships to transport crude oil are too large to use the expanded Panama Canal. This restriction will likely limit flows of US crude oil to destinations on the western coast of Central and South America. Instead, more volumes of US crude oil exports are likely to go to destinations in Asia through the Suez Canal or around the southern tip of Africa and to destinations in Europe using trans-Atlantic routes.
Finally, future petroleum flows through the Panama Canal are likely related to expanding petrochemical demand for HGL in Asia; economic growth in El Salvador, Ecuador, Peru, and Chile; and growth in US petroleum product exports.
