New fees to be implemented in mid February by the Panama Canal Authority (ACP) don’t bode well for the liquefied natural gas (LNG) industry, but they may not lead to major repercussions for U.S. exports, an analyst said.
In an effort to sustain operations following multiple low-rainfall years that have threatened the locks, the ACP plans to impose fees on freshwater and service handling to vessels that transit the Canal. It also plans to reduce the number of daily reservation slots available to vessels.
Starting Feb. 15, the freshwater fee would apply to all vessels longer than 125 feet overall (LOA) and include a fixed fee of $10,000/transit. A variable fee also would be imposed of 1-10% of the vessel’s toll, which would be applied depending on Gatun Lake levels at the time of transit. For example, if the waterway levels were higher, the percentage would be lower, and vice versa.
A handling service fee also would be applied to all visits for transit at the time they are created in ACP’s system. For vessels 91 feet in beam and longer, a $5,000 fee is to be applied. For vessels that are 125 feet LOA but under 91 feet in beam, a charge of $1,500 would be applied.
With updated tolls for LNG carriers already set to go into effect in April, an LNG carrier with a capacity of 174,000 cubic meters would pay around $850,000 for a roundtrip ballast voyage completed within 60 days, up from around $785,000, according to shipping broker Fearnleys AS.
Tacking on a 10% fee would add around $80,000 to the voyage and while “it is not positive for LNG trade,” the fee “is only an additional element to all those that will decide if any cargo is canceled,” said Fearnleys senior analyst Gonzalo De Arteaga.
“It’s not more expensive than the charter cost of waiting for one day to get the transit if you think about it,” he added.
In addition to the fees, the ACP plans to reduce the number of daily slots available to 27 from 32. Regular vessels up to 90.00 feet in beam would have six slots available, while super vessels up to 107 feet would have 13 slots available and Neopanamax vessels would continue to have eight slots, according to ACP.
One slot for supers and one slot for regular vessels are to be awarded through the auction process three days before transits. The ACP plans to continue to provide additional capacity when possible, serving vessels on a first-come, first-served basis.
“Without fee and operational changes, the Canal’s water levels are projected to drop to levels that would affect the Neopanamax and Panamax Locks,” the ACP said. “These new measures are intended to better provide reliability in water levels and therefore transit schedules.”
Despite the use of “extensive” water conservation measures, 2019 rainfall was 20% below the historic average and the fifth driest year in 70 years, according to ACP. It follows several years of lower-than-average rainfall coupled by a 10% increase in water evaporation levels because of a 0.5-1.5 C rise in temperature.
The latest conservation measures follow an evaluation of the impact of techniques already instituted by ACP to save water used in operations. For example, the Canal has been implementing cross-filling lockages, a technique that sends water between the two lanes at the Panamax Locks during transits and saves an amount of water equivalent to that used in six lockages each day.
ACP also has suspended power generation at the Gatun hydroelectric plant, eliminated hydraulic assistance at the Panamax Lock and uses water-saving basins at the Neopanamax Lock. Tandem lockages have been implemented also to conserve water, allowing two vessels to transit at the same time when size allows.
In April 2018, about two years after an expansion was completed, the Canal demonstrated it could transit up to three vessels on the same day in the same direction, with the tankers all destined for Cheniere Energy Inc.’s Sabine Pass terminal in Louisiana.
ACP also plans to expand its investment program to include projects focused on addressing the sustainability of the water supply in the medium and long term. “The Panama Canal will continue to dedicate a portion of its income to analyzing and identifying solutions to the problem of water availability in the watershed.”
The Panama Canal completed fiscal 2019 (FY2019) with record tonnage of 469 million tons, a 6.2% increase year/year (y/y), surpassing earlier projections of 450.7 million tons, as well as the record tonnage of 442 million tons recorded in the previous year.
During FY2019, liquefied natural gas (LNG) transits rose by 37.6% y/y, representing the largest gain across segments. The liquefied petroleum gas segment increased by 6.9% y/y, while crude product tankers rose by 5.6%. The primary users of the waterway were transits from the United States, China, Japan, Chile and Mexico.