Posted - October 10, 2013 - Hellenic Shipping News Worldwide
The biggest beneficiary when the expanded Panama Canal opens for
business in 18 months' time will be arbitrage flow of LPG from the US
to Asia, according to a Bernstein Research report.
The canal's expansion, when completed by 2015, will allow the passage of
larger vessels, including very large gas carriers or VLGCs and LNG
vessels, for the first time.
Sailing time for vessels from the East Coast of the US to the
Asia-Pacific will be reduced to 25 days through the Panama Canal, versus
41 days currently going around Cape Horn and 43 days on the eastern
route through the Suez Canal.
This would cut shipping costs by 30-50%, with the sailing time and
freight rates through the Panama Canal comparable with those from the
Middle East to Asia, the report said.
Not all commodities will lend themselves to the price and freight
arbitrage between the US and Asian markets, Bernstein said. While coal
prices have declined in the US as a result of the shale gas, weaker
demand growth in China has also lowered prices in Asia. Oil product
flows through the canal are also unlikely to increase significantly,
given the limited spreads between East Coast product prices and
Singapore, the report added.
Only an expansion of the Brent-WTI differentials would make this trade
attractive, "which in our view is less likely going forward," Bernstein
analyst Neil Beveridge said in the report. LNG IMPACT SEEN LIMITED
LNG flows from the US to Asia would also benefit from the expansion of
the Panama Canal, but the opportunity is likely to be limited by the US
government, which Bernstein believes will restrict exports to less than
60 million mt/year by 2020.
Meanwhile, US LPG exports, currently around 5 million mt/year, are
expected to grow to 10 million mt/year by 2015 and over 20 million
mt/year by 2020 -- at which point the country will overtake Qatar and
Saudi Arabia as the world's largest LPG exporter -- according to
Bernstein's research.
The growth in North American LPG production has widened the spread
between US LPG prices as measured at Mont Belvieu in Texas and the
Middle East prices as measured by the Saudi Contract Price to $200/mt.
The expansion of the Panama Canal will cut shipping costs of US LPG to
east Asia to around $100/mt from the $150-200/mt via Cape Horn, the
report said. This would give a sharp boost to Asian demand for US LPG,
putting downward pressure on Middle East LPG export prices, it added.
In fact, US LPG prices to Asia will be about $2.5/MMBtu cheaper than
oil-indexed LNG prices into Japan, which are around $16.4/MMBtu, the
report said. This pricing advantage could also slow down the conversion
of households and industrial plants to natural gas from LPG, it added.
The Asia-Pacific region accounts for some 40% of global LPG consumption
of around 260 million mt/year, and about 75% of global demand growth,
the Bernstein report noted.
Increasingly, LPG is also being absorbed in the petrochemical industry,
as feedstock for propane dehydrogenation units, which convert propane to
propylene. While the US is growing PDH capacity, so is China, which has
approved the construction of 17 PDH units that will require 12 million
mt/year of additional LPG, which is most likely to come from the US, the
report said.
Source: Platts
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