The Daley Note: October 12, 2023
A drought is restricting tanker traffic through the Panama Canal and could slow growth in LPG exports from the Gulf Coast.
The Panama Canal is the main trade route linking Gulf Coast terminals to the Asia-Pacific market, the main driver of new demand. Exports account for around 70% of propane demand and have been a bright spot in the market in 2023, according to East Daley’s NGL Network Model. Terminal operators like Energy Transfer (ET) and Enterprise (EPD) anticipate more growth ahead.
The drought in Central America could disrupt the emerging trade. In late July, the Panama Canal Authority, the agency in charge of operations, began limiting the number of vessels allowed to pass through the canal to 32/day, from 36-38/day previously. Water levels at Lake Gatun, the transit route for ships and Panama’s main source of drinking water, fell to the lowest level since at least 1995, according to reporting by the EIA.
The Panama Canal Authority reported water depth at Lake Gatun of 79.9 feet in early October 2023, down from a peak of 88 feet in December 2022. The canal needs water levels as high as possible to allow vessels with drafts of 44 feet to transit safely. The canal operator plans to further restrict daily traffic to 31 vessels starting November 1.
The bottleneck is causing shipping rates to rise and forcing very large gas carriers (VLGCs), the specialized vessels that carry LPGs, to take longer journeys to Asia. LPG exports are up 5% YTD in 2023 vs 2022 in the NGL Network Model, but growth could slow in the back half of the year due to shipping delays.
East Daley is monitoring the propane market in particular for volatility. Surging propane exports have helped balance the market amid an otherwise down year for demand, hitting a record high in September 2023 of 1.66 MMb/d, according to Energy Information Administration data. Nevertheless, US propane/propylene inventories are at a 5-year high of about 100 MMbbl as of September 2023 (see chart). Any disruptions to exports and another warm winter could send propane prices cratering. – Christina Adjiman Tickers: EPD, ET.
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