Lengthy Panama Canal delays could pose risk for LNG

HOUSTON — Commercial analysts at Wood Mackenzie warned Wednesday that lengthy delays to the widening of the Panama Canal could impact profitability for some U.S. liquefied natural gas producers. But the research firm expects the dispute that’s causing those delays to be resolved soon.

Delays in the canal’s expansion could be problematic for the growing number of liquefied natural gas export facilities in the United States. Observers say a wider Panama Canal is crucial to facilitating LNG exports from the U.S. to Asia.

The delays have caused great concern among a variety of commercial interests worldwide. If the expansion is delayed until early 2016, the first of a new round of LNG exports from Sabine Pass could be impacted, resulting in higher shipping costs to the Asian market due to the longer route around Africa’s Cape of Good Hope.

But, Wood Mackenzie notes, the spread between Asian and U.S. gas prices is so wide that trade would still be profitable, even if shippers must continue to take the longer route initially.

And the analysts say they are not overly concerned about the dispute will be drawn out.

“Given the enormous strategic and financial importance of the canal to Panama, we expect the gridlock to be resolved,” said Andrew Buckland, senior LNG shipping analyst with Wood Mackenzie, in a written statement. “If the delays last 6 –12 months, it will have limited impact, as trade will carry on much as it does now, but further delays threaten the investments of a significant number of groups that are set to benefit from expanded capacity on the waterway.”

The expansion is expected to be complete late next year and will allow vastly larger ships to pass through the canal. As it stands, liquefied natural gas is not traded through the canal because most LNG tankers are too large to pass through.

For two weeks, work on the massive project has been at a standstill due to disagreements about cost overruns between the Panamanian government and the consortium of construction companies completing the work.

The Wall Street Journal reported Thursday that work had resumed on the project after the dueling sides reached a partial agreement. However, the newspaper reports that the construction consortium plans to continue talks with Panama, even though workers are back on the job.

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