LNG vessels may have to opt for auctions to transit Panama Canal in December

LNG vessels will likely have no choice but to participate in auctions to expedite their transit through the Panama Canal starting in December, given a change in the rules governing the booking slots available to them.

"Starting from December 1, only one slot will be available in period 1A and one slot in period 2. If container vessels secure these slots through the application of priority rules, LNG vessels will have no choice but to opt for auctions," a Panama Canal Authority spokesperson said via email Nov. 15

The current rules applicable to vessels transiting the Neopanamax locks, effective from Nov. 1, only allow LNG vessels to use the slots allocated to period 1A and period 2, corresponding to bookings made between 15-30 days before the desired transit date and bookings made 8-14 days in advance, respectively. Full container vessels, however, have first priority to book slots under these two periods, the spokesperson said.

While the total number of slots allocated to Neopanamax vessels is set to further reduce in January and February, the number of slots under periods 1A and 2 will remain at two, at least until further notice, based on the latest advisory on the matter the authority issued Oct. 30.

The Canal has experienced its most severe drought in years, leading the authority to implement restrictive water-saving measures over the past few months. Due to congestion at the waterway, vessels have been bidding significant amounts in auctions to skip the canal's queue. An LPG vessel recently paid nearly $4 million in an auction conducted earlier this month, the authority previously confirmed.

The anticipated inability for LNG vessels to reserve slots for transiting the canal starting in December will likely lead to spot cargoes bound for Asia to seek alternatives routes, trading sources said.

"A lot of spot cargoes have started to look for alternative routes," an Atlantic-based trader said. "I think the slight uptick we see [in Asian LNG prices] is because of that."

South Korean buyers of US LNG have started bypassing the Panama Canal, with at least two carriers heading to the Suez Canal, S&P Global Commodity Insights shipping data shows.

Japanese lifters of US LNG are also considering alternative options for shipping their winter cargoes to deal with the situation, S&P Global previously reported. The options include cargo swaps or routes via the Suez Canal or the Cape of Good Hope.