Panama Canal Expansion: Will Panama Canal Be a Game-Changer for Liquefied Natural Gas Exports to Asia?

The expansion of the Panama Canal will be completed by 2015. The route through the Panama Canal will shorten voyages from North America to Japan by more than 7,500 nautical miles. However, the competition for use of the Canal is high because it is a major route for container ships and other vessels including crude oil, metal ores, and other materials. Therefore, several questions have been raised regarding how much the capacity of the Panama Canal will be available for liquefied natural gas (LNG) passages and how much LNG will go through the Canal. Applying the 2014 version of the World Gas Model, a large-scale, game theory-based global gas model, this paper investigates the influence of the Panama Canal capacity level for LNG tankers on global gas markets and LNG exports from the Gulf of Mexico through five scenarios. The model results show that without the Panama Canal route with its expanded capacity, it is unprofitable to export LNG from the Gulf of Mexico to Asian markets. However, there may be noneconomic reasons such as energy security to motivate such trade. In addition, when Panama Canal capacity is limited, the United States becomes a swing LNG exporter who supplies both Asian and European markets.