Chokepoints: Panama Canal

The Panama Canal is an important route connecting the Pacific Ocean with the Caribbean Sea and Atlantic Ocean. The canal cuts across the Isthmus of Panama and is a key conduit for international maritime trade. The canal is 50 miles long and only 110 feet (33.5 m) wide at its narrowest point called Cullebra Cut on the Continental Divide. Over 14,000 vessels transit the canal annually, of which more than 60 percent (by tonnage) represent United States coast-to-coast trade, along with United States trade to and from the world that passed through the Panama Canal.

panamacanal

Closure of the Panama Canal would greatly increase transit times and costs adding over 8,000 miles of travel. Vessels would have to reroute around the Straits of Magellan, Cape Horn and Drake Passage under the tip op South America. However the Panama Canal is not a significant route for petroleum transit or for U.S. petroleum imports. The traffic of crude oil and petroleum products -including liquefied petreolum gas (LPG)- represented 14.7 percent of the total cargo tonnage transported through the Panama Canal in fiscal year 2012. Much of the crude oil and refined products shipped via the canal originate from or are destined for regional markets such as the East and Gulf coasts of the United States, Ecuador, Venezuela, the Caribbean or elsewhere in Latin America. The canal also supports the chemicals trade between the U.S. Gulf Coast and Asia.

The relevance of the Panama Canal to the global oil trade has diminished as many modern tankers are too large to travel through the canal. Some oil tankers, such as the ULCC (Ultra Large Crude Carriers) class tankers, can be nearly five time largers than the maximum capacity of the canal. The largest vessel that can transit the Panama Canal is known as a PANAMAX-size vessel (ships with a maximum size of approximately 70,000 to 80,000 deadweight tons -dwt). The canal’s current configuration prevents transits by « post-Panamax » classes of tankers that are more commonplace both in the existing global tanker fleet and in order books: Suezmax, Aframax and Very Large Crude Carriers (VLCC). Only 16.4 percent of the wolrd’s existing tanker fleet and 6.8 percent of tankers on order can use the canal. In order to make the canal more accessible, the Panama Canal Authority began an expansion program to be completed by the end of 2014.

An expanded canal with new locks will accomodate 56.4 percent of the existing fleet and 44.4 percent of the orderbook, or post-Panamx classes with the exception of VLCCs. The expander canal will result in greater integration of the worldwide LNG trade and give U.S. natural gas producers access to prime Asian markets with shorter, more direct transit routes -especially from Gulf Coast terminals. In addition the canal’s ability to handle larger tankers could reduce overall LNG shipping costs by approximately 25 percent.

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