The influence of the Panama Canal on global gas trade

An increasing growth of unconventional gas production in the U.S. has gradually turned it into a potential gas exporter. In near future, increasing LNG exports from the U.S. coupled with the capacity of the Panama Canal will change the LNG market. The Panama Canal expansion is the key to the change because the route via this canal reduces the voyage by 7000 nautical miles to Japan from the Gulf of Mexico. Applying the World Gas Model from the University of Maryland, this paper investigates the potential effects of varying Panama Canal tolls on the LNG markets via six scenarios of possible Panama Canal tariffs. Results are compared and examined with the focus on prices, LNG flows, and supply displacement. We find a significant LNG volume tradeoff between Asian and European gas markets. The U.S. and Trinidad & Tobago are key players due to their LNG exports displacing to some extent, flows from the Middle East, Africa, and other Asian suppliers to the Japanese and South Korean markets. Japanese & South Korean prices are significantly reduced when the Panama Canal tariff is low due to more supplies from the Atlantic Basin. As the toll increases, the U.S. and Trinidad &Tobago switch their exports to Europe rather than these markets in East Asia. European prices are improved when that region gets more LNG from the Atlantic basin.