Drought Increases VLGCs Shipping Rates To Record Highs

A drought is causing significant delays for ships traversing the Panama Canal and increasing shipping rates for Very Large Gas Carriers to record highs.

This, in turn, is increasing shipping costs for LPG from the United States, the Energy Information Administration said on Tuesday.

The Panama Canal Authority has stated that the water levels at the artificial Gatun Lake are at their lowest levels in nearly 30 years on lower-than-normal precipitation. Gatun Lake lies between the Atlantic and Pacific locks, and is the reservoir for holding the water needed to operate those lock systems.

The Canal Authority implemented restrictions to conserve water at the beginning of the year, limiting the number of vessels allowed to traverse the canal to 32 per day as of July 30. In just a week from now, the Authority will reduce this to 24 vessels per day, 12 fewer than typical levels.

Long lines have now formed by vessels waiting to enter the canal. The delays have caused VLGC rates to soar, with rates hitting $250 per ton as of the end of September for the Houston-Chiba route.

“The Panama Canal is a major energy transit point. The Panama Canal is important for trade between the United States and East Asia and the western coast of South America. Vessels carrying petroleum products, hydrocarbon gas liquids (HGLs), and chemicals make up one-third of trade transiting the canal,” The EIA said on Tuesday.

Vessels can bypass the canal by taking another route, but this often lengthens the trip beyond the time it would take to wait at the Panama Canal. A vessel’s wait could take more than two weeks, the EIA explained, pointing to Neopanamax-sized ships traveling through the locks in August.

By Julianne Geiger for Oilprice.com

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