The influence of the Panama Canal on global gas trade Seksun Moryadee a, * , Steven A. Gabriel a, b , François Rehulka c a Civil Systems Program, Department of Civil and Environmental Engineering, University of Maryland, College Park, MD 20740-3021, USA b Applied Mathematics, Statistics, and Scientific Computation Program, University of Maryland, College Park, MD 20740-3021, USA c EDF R&D, 92141 Clamart Cedex, France article info Article history: Received 1 May 2014 Received in revised form 14 June 2014 Accepted 16 June 2014 Available online Keywords: LNG Natural gas MCP Market equilibrium model abstract An increasing growth of unconventional gas production in the U.S. has gradually turned it into a potential gas exporter. In near future, increasing LNG exports from the U.S. coupled with the capacity of the Panama Canal will change the LNG market. The Panama Canal expansion is the key to the change because the route via this canal reduces the voyage by 7000 nautical miles to Japan from the Gulf of Mexico. Applying the World Gas Model from the University of Maryland, this paper investigates the potential effects of varying Panama Canal tolls on the LNG markets via six scenarios of possible Panama Canal tariffs. Results are compared and examined with the focus on prices, LNG flows, and supply displace- ment. We find a significant LNG volume tradeoff between Asian and European gas markets. The U.S. and Trinidad & Tobago are key players due to their LNG exports displacing to some extent, flows from the Middle East, Africa, and other Asian suppliers to the Japanese and South Korean markets. Japanese & South Korean prices are significantly reduced when the Panama Canal tariff is low due to more supplies from the Atlantic Basin. As the toll increases, the U.S. and Trinidad &Tobago switch their exports to Europe rather than these markets in East Asia. European prices are improved when that region gets more LNG from the Atlantic basin. © 2014 Elsevier B.V. All rights reserved. 1. Introduction The global natural gas market has undergone a number of changes recently due to new unconventional resources such as shale gas. This has been at roughly the same time as the rise in consumption in liquefied natural gas (LNG) especially in Asian markets. LNG is an attractive alternative to gas transported by pipelines and helps consuming countries to diversify their supply portfolio (Wood, 2012). LNG is also a key option to compensate for domestic resources that are depleting for example in Europe. Over the last decade, LNG market has been dominated by a few ex- porters. For example, 83% of the global LNG trade in 2012 was supplied by eight countries. Qatar was the largest exporter followed by Malaysia and Indonesia (GIGNL, 2013). However, in near future the global LNG market will undergo rapid changes as it welcomes the entry of new exporters from the U.S. and increased supplies from Australia (Leather et al., 2013). In the past, LNG trade has been divided into two basins, the Pacific and Atlantic Basins, and most LNG trade is confined within one basin (GIGNL, 2013). LNG trade between basins is unprofitable due to high shipping costs and a small price gap between these two basins. Recently, the price dif- ference between the basins has increased since mid-2010 due to strong demand in Asia. Therefore, trading LNG between basins became profitable depending on the shipping costs. Thus, while LNG markets previously were separate due to financial disadvan- tage, the rise of LNG in Asia and elsewhere, coupled with an expanded Panama Canal, are increasing the competitiveness of global LNG markets. For instance, U.S. LNG exports can compete with Australian and Middle Eastern LNG exports in the Japanese and South Korean markets or for other high demand areas in Asia. The expansion of the Panama Canal is scheduled to be completed in June 2015. The route via the Panama Canal will shorten voyages by more than 7500 nautical miles (8500 miles) from the East Coast of North America to Asia. With shorter dis- tances, the cost of U.S. LNG from the East Coast going to Asia will be very competitive compared to the cost of LNG from the Gulf countries. For example, taking a Henry Hub reference price of $3/ MMbtu, a liquefaction and storage cost of $3/MMbtu, the MMbtu cost aboard an LNG carrier out of the Gulf of Mexico, Texas or Louisiana, will be $6/MMbtu. The shipping cost to East Asia without the Panama Canal can be estimated at between $2.5/MMbtu and $3/MMbtu. This gives an LNG delivered price of about $9/MMbtu * Corresponding author. Fax: þ1 301 405 2585. E-mail address: smoryade@umd.edu (S. Moryadee). Contents lists available at ScienceDirect Journal of Natural Gas Science and Engineering journal homepage: www.elsevier.com/locate/jngse http://dx.doi.org/10.1016/j.jngse.2014.06.015 1875-5100/© 2014 Elsevier B.V. All rights reserved. Journal of Natural Gas Science and Engineering 20 (2014) 161e174