More Asia-bound US LNG cargoes avoid Panama Canal even as Red Sea concerns rise

More LNG carriers taking US cargoes to Northeast Asia are avoiding the Panama Canal in light of tightening restrictions on the route, shipping data shows, with the number of ships using the Suez Canal route looking set to continue rising for the upcoming high-demand winter period despite the recent seizure of a vessel in the Red Sea.

The SM Eagle -- chartered by Korea Gas Corp. -- is currently sailing in the Caribbean after having loaded an LNG cargo and left Sabine Pass in Louisiana Oct. 30, and is expected to arrive at Port Said, the northern entrance of the Suez Canal, on Dec. 6, according to data from Platts cFlow ship and commodity tracking software from S&P Global Commodity Insights.

It is the second Kogas-chartered LNG carrier to take the Suez Canal route to South Korea after the Hyundai Princepia, which is currently expected to arrive at Pyeongtaek Dec. 9 after transiting the Suez Canal and sailing through the Red Sea, according to Platts cFlow.

Kogas officials said the the two vessels were using the Suez Canal due to the increasing restrictions on transits through the Panama Canal caused by a historic drought.

The number of booking slots available for transiting the Neopanamax locks (for ships including LNG carriers, container ships and Very Large Gas Carriers), which stood at 10 per day prior to this month, has been reduced to seven currently and will fall to six for December, and then five from Jan. 1, 2024, according to the Panama Canal Authority.

"This 50% decrease in transit slots for Neopanamax vessels will presumably leave one slot a day for LNG tankers to cross either north or southbound, essentially restricting laden LNG traffic from the United States to 15 crossings per month," S&P Global analysts said in a report Nov. 16.

Alternative routes

South Korean LNG importer SK E&S's LNG carrier Prism Brilliance is currently sailing in the North Atlantic towards the Suez Canal arriving Nov. 24, having left Freeport in Texas on Nov. 8 after loading a cargo, according to Platts cFlow.

SK E&S confirmed the latest ship movement to S&P Global and said it has previously used the Suez Canal or Cape of Good Hope routes as alternative to the Panama Canal during the winter, when Asian and European buyers boost US LNG imports.

"Going forward, we will place the top priority to stable supplies and efficiency in choosing shipping routes, among the Panama Canal, the Suez Canal or the Cape of Good Hope," an SK E&S official said.

Similarly, the Maran Gas Andros, chartered by Japan's JERA, is currently sailing in the North Atlantic heading east and is expected to arrive at Futtsu in Japan on Dec. 25, after having loaded a cargo and left Freeport Nov. 14, according to S&P Global Commodities at Sea.

It was not immediately clear which route -- the Suez Canal or the Cape of Good Hope -- the Maran Gas Andros is taking to reach Futtsu in Tokyo Bay. A JERA spokesperson declined to comment on route specifics.

Other Japanese lifters of US LNG are also considering alternative options for shipping their winter cargoes in light of the tightening restrictions through the Panama Canal, including LNG cargo swaps.

Suez risk rising

One factor that will have to be considered is the potential for maritime disruptions or war risk premium on Suez Canal transits stemming from ongoing conflicts in the Middle East, according to ship brokers and market participants.

This has been brought into focus by the seizure on Nov. 19 of the NYK Line-chartered car carrier Galaxy Leader in the Red Sea off Yemen by Houthi rebels during a voyage to India.

LNG importers in Northeast Asia are assessing the risks involved in taking the Suez Canal and the Red Sea route in light of the development.

Two Japanese buyers of US LNG said that they were not immediately ruling out using the Suez Canal, but would keep open the option of the Cape of Good Hope.

A Kogas official said: "There are no troubles at the LNG carrier using the Suez Canal at the moment despite the seizure of a car carrier in the Red Sea, and the situation is unlikely to affect our consideration of shipping routes."

The SK E&S official said that the company would "consider such risks in choosing shipping routes."

Profitability crimped

US LNG cargoes are destination flexible, and importers in both Europe and Asia compete for this supply, mainly during winter when gas demand for heating spikes in both regions.

According to ship brokers and market participants, at current freight rates of around $160,000-$165,000/day for an LNG carrier in the Asia Pacific or the Atlantic Basin, it is only profitable to send a US cargo to Northeast Asia, instead of sending it to Europe, if it is shipped through the Panama Canal at standard rates.

The arbitrage opportunity fades when using more expensive routes like the Suez Canal or the Cape. Despite this, Japanese and South Korean lifters of US LNG have been looking at the Suez Canal as an alternative trade route for their winter cargoes, after the Panama Canal Authority announced that it will cut daily vessel transits until at least February 2024.

The higher freight cost is on the back of longer shipping routes -- it takes 24 days for an LNG cargo from Sabine Pass in the US Gulf Coast to reach Northeast Asia via the Panama Canal, but 36 days via the Suez Canal and 38 days via the Cape.