Disruptions in Panama and Suez Impact Over 10% of Global LNG Trade

Restrictions and disruptions in ship transits through the Panama and Suez Canals are impacting more than 10% of global liquefied natural gas (LNG) trade, according to a recent report from the Oxford Institute of Energy Studies.

The report highlights that due to restrictions and drought affecting ship transits in the Panama Canal, the volume of LNG shipped through the canal experienced a two-thirds decrease from August 2023 to January 2024. The report suggests that this trade volume could potentially drop to zero in February.

The report also notes that since January 12, no LNG cargo has passed through the Red Sea due to attacks on ships by Houthi rebels. It states, “In 2023, 8% of global LNG exports were conducted through the Suez Canal, and 2.5% through the Panama Canal. Disruptions at these points affect just over 10% of global LNG trade.”

While the canal disruptions do not impede shipping between the Atlantic and Pacific Basins, they result in LNG cargoes being rerouted over longer routes, reducing shipping capacity.

The report suggests that as a consequence, the global LNG supply, which was 400 million tons last year, could decrease by 5.4 million tons. It notes, “This slight decrease in global supply is relatively limited compared to fluctuations in global LNG demand and could explain the limited response in benchmark LNG prices in Europe and Asia.”

The impact is primarily on deliveries from Qatar to Europe and from the United States, Russia, Algeria, and Egypt to Asia. The report highlights, “As a result, cargoes are being rerouted via the Cape of Good Hope (South Africa) or redirected to other markets. Longer routes mean higher shipping costs and a smaller LNG volume that can be delivered by each ship over a specific period. These additional costs will only be compensated through higher selling prices if the disruption leads to an increase in LNG import prices in Europe and Asia.”

The report concludes that the ongoing disruptions pose challenges to the LNG market, emphasizing the importance of global cooperation to address the issues and ensure the stability of the LNG trade.

source: / prepared by Melisa Beğiç

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