US LNG flows to Asia adapt in 2023 as bottlenecks emerge

The Suez Canal's market share of US LNG cargoes making their way to Asia grew by a third in 2023, rising as transit through the Panama Canal saw increased bottlenecks due to historically low drought-induced water levels. Despite the Suez's popularity, recent events have forced the market to rethink utilizing the trade route through the Red Sea.

Historically low water levels at the Panama Canal due to a drought from the El Nino weather cycle helped popularity in both the Suez Canal and Cape of Good Hope passages to grow in 2023. Despite being the fastest way to reach the Asian market from the US under optimal conditions, the Panama Canal's market share for US LNG exporters looking to reach Asia dropped by 10 cargoes from the previous year in 2023, S&P Global data showed.

Due to lower water levels in Panama from a drought that began in mid-2023, the Panama Canal Authority, or ACP, set draft restrictions that limited the number of carriers able to transit the canal. With water levels continuing to falter in the region, the ACP has utilized further draft and daily transit restrictions for each vessel class to manage the impacts of the drought.

In 2023, 145 LNG carriers made the voyage from the US to the Pacific Basin via the Panama Canal, down from 155 during 2022, S&P Global data showed. While the canal saw only a 7% decrease on the year, US LNG exporters making their way to Asia via the Suez Canal or the Cape of Good Hope rose by 35% and 38%, respectively, during the same period.

"We've seen Atlantic Basin trade shift from Panama Canal to the Cape of Good Hope," Ross Wyeno, director for LNG analytics at S&P Global, said. "LNG tanker transits through the Panama Canal have fallen to 0.6 transits per day so far this winter, down roughly 45% from last winter. LNG tanker transits around the Cape of Good Hope are averaging 0.8 transits per day so far this winter, nearly four-times higher than last winter."

In July, US exporter Cheniere said it was avoiding the Panama Canal to ship in LNG because of unfavorable market conditions. Since then, others have chosen to bypass the canal in favor of other routes.

In November, Korea Gas Corp. officials confirmed to S&P Global that the company was using the Suez Canal to import a Sabine Pass LNG cargo as a result of increasing restrictions on transits at the Panama Canal caused by the historic drought.

The Suez Canal route's popularity grew as wait times at the Panama Canal continued to increase, with flows via the Suez reaching a 31-month high in September with 17 LNG cargoes passing through the canal to reach Asia from the US. The number of US LNG cargoes reaching the Pacific Basin via the Suez Canal was last seen higher in February 2021 at 35.

Suez Canal

The Suez Canal has remained a popular trade passage for US exporters, despite regional unrest stemming from attacks by Iran-backed Houthi militants on ships in the Red Sea.

In November 2023, Yemen's Houthi fighters seized a cargo vessel in the Red Sea, and since then has launched many more attacks.

Despite the increased risk premium for traversing through Red Sea by way of the Suez Canal, LNG carriers still continue to make the trek. Thus far in 2024, four US LNG cargoes have sailed through the Suez Canal to reach Asia, one more than the number of cargoes making the voyage through the Panama Canal, S&P Global data showed.

The conflict escalated further after a US-led coalition launched strikes on Jan. 9, leading to retaliation by the Houthi militants.

With this latest round of attacks, some LNG carriers have diverted, with three LNG-laden Qatari carriers moving to avoid the Red Sea. The Al Nuaman, Al Ghariya and Al Huwaila each departed Qatar and made their way to the Gulf of Aden before diverting south around Jan. 15, S&P Global Commodities at Sea data showed. Now, one of the three carriers which was previously heading towards the Suez Canal is heading to the Canary Islands for bunkering, according to CAS data.

As tensions escalate in the Red Sea, the Cape of Good Hope continues to be the preferred route for US cargoes headed to Asia. The five US cargoes that sailed around the cape so far in January have surpassed the combined transits of US LNG cargoes through the Suez and Panama canals over the same period, S&P Global data showed.

Platts, part of S&P Global Commodity Insights, assessed the Gulf Coast Marker for US FOB cargoes loading 30-60 days forward at $6.76/MMBtu Jan. 17.