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POSTED ON Jun 17, 2017
 

With a blazing crescendo of multi-colored fireworks, the Chinese-owned container ship Cosco Shipping Panama slowly nosed through the long-heralded “Third Set of Locks” on the Pacific side of the expanded Panama Canal.

Cosco Shipping Panama’s 984-foot length, far too big for the century-old canal’s original lock system, makes it the first “Neo-Panamax” vessel to transit the canal, opening a new era in world commerce.

The big cargo ships from Asia that before now only could dock in Long Beach, CA, now can begin heading to the U.S. East and Gulf Coast ports, not only to deliver Pacific Rim cargoes but, in increasingly large quantities, to move American-produced energy supplies out to world markets.

It’s a big thing because as U.S. Ambassador John Feely said in a press briefing, most of the canal’s ship traffic, coming from and going to ports all over the word, either ends up in a U.S. port or leaves from one.

Materials supplied by the Canal Authority, an independent government agency authorized by an amendment (Title XIV) to the Panamanian Constitution, back him up: Cargo from 1,700 ports in 160 countries reaches the canal from over 144 ocean routes, and Ambassador Feely said that two out of every three ships transiting the canal either head to a U.S. port or have just left from one.

But after 102 years of service, the old lock system—even after improvements that replaced mechanical gate actuators with hydraulics, renovated and upgraded the railway over which the famous GE “donkey engines” moved to haul ships through the locks, and replaced the donkey engines themselves with more sophisticated models—simply could not suffice for the vastly bigger vessels being built to move cargo in the 21st century.

Planning Began Long Ago

To be truthful, however, the roots of this Canal Expansion Project go much further back in history.

The U.S. Army Corps of Engineers, which built the canal at the turn of the 20th century, actually began developing ways to enlarge the canal just before World War II. With clouds gathering for the coming global storm, top U.S. commanders wanted a way to move their biggest combatants—aircraft carriers and battleships—rapidly between the Atlantic and Pacific oceans.

Accordingly, contractors began digging huge trenches for a third set of locks in 1939. Those trenches, their construction halted when Pearl Harbor brought the United States into the war, were orphaned after the war because in addition to establishing naval fleets in both the Atlantic and the Pacific, the U.S. military now had bases all over the world. There was no need to hustle large fleet assemblages between the U.S. East and West Coast naval stations.

Commerce Follows Military’s Move

Alfred Thayer Mahan, the naval strategist whose policy arguments for a “Contiguous Sea Frontier” convinced a skeptical Congress and President Theodore Roosevelt to undertake the massive Panama Canal project in the first place, would have been pleased.

But the military was not the only user of the canal once it was built. As history has shown, captains of commerce and industry all over the world quickly realized that with a canal waterway cutting 50 miles across the narrow Isthmus dividing the Atlantic and Pacific oceans, 5,600 miles of dangerous passage around the tip of South America could be bypassed, saving time and money for the shippers of goods and movers of people between ports all over the world. Throughout the 20th century, the Panama Canal became a mainstay in logistical planning in the U.S. and all over the world, as it still is today.

Heading to American Shores

U.S. Ambassador John Feely, speaking at a business briefing held at Hotel Riu in downtown Panama City just before Cosco Shipping Panama steamed westward from the Caribbean to the Cocoli Locks, made his astonishing statement that two out of every three ships that transit the Panama Canal are either headed to U.S. ports—from all 1,700 or so ports in some 160 countries—or headed out from U.S. ports.

As stated above, today the Panama Canal’s aging locks are too small for the large container ships and bulk liquids carriers that bring today’s shippers economies of scale, cutting fuel costs, personnel costs, and the time it takes to get goods to market. By 1995 studies by the Army Corps of Engineers and Panama’s own Blue Ribbon Engineering Commission had established that far too many of today’s larger vessels, especially those carrying manufactured goods from Asia, were able to dock only at Long Beach, CA, to offload cargoes for rail shipment to eastern states.

Shipper’s Choice: Bigger Is Better

Now, as Canal Authority chief Jorge Luis Quijano says, with the deepening of the canal to 60 feet in the new shipping channels to the Culebra Cut through a mountain range in the Isthmus’ middle, an earlier widening of the Cut itself for two-way traffic, and the installation of Cocoli Locks and their Aqua Clara siblings at the canal’s eastern end, some 95 to 98 percent of the world’s biggest cargo carriers will be able to scoot through the expanded canal to head for the East Coast ports of their shippers’ choice.

Not all of those Eastern port areas are completely ready yet of course.

• The Port of New York and New Jersey, the biggest, is deepening the Hudson River from 45 to 50 feet and working to raise the deck of the Bayonne Bridge, which carries highway traffic to New Jersey, 64 feet by next year to let the biggest Neo-Panamax vessels slip safely beneath its heavy steel trusses.
• The Port of Philadelphia, 90 miles south, is finishing the dredging of the Delaware to 45 feet so that the river, with its six-foot tidal range, can handle Neo-Panamax vessels with heavier loads than it now can transport.
• Baltimore, with its bigger Chesapeake Bay turning circle, which has already deepened its channel to the 50-foot post-Panamax standard, has purchased beefy new, larger tugboats and taller, broader-reach containerization cranes to handle big Neo-Panamax ships. Over the last year, Baltimore has seen 50-foot draft vessels that came through the Suez Canal reach its port to be handled by those bigger tugs.
• Farther south, Norfolk already has deepened to 50 feet and advertises that it can handle not just Neo-Panamax vessels but the biggest ships that sail through the Suez Canal.
• Charleston, SC, and Savannah, GA, engaged in a lengthy political argument over which port could best benefit from Corps of Engineers investment, are both now dredging their ports’ shipping channels deeper.
• Miami already deepened its channel, dug a tunnel under Biscayne Bay to connect its port to the Interstate Highway system, and rebuilt a storm-damaged rail bridge to support freight rail access. And just days after the expanded canal’s opening, the Japanese-owned Mitsui O.S.K. Lines vessel MOL Majesty, at 990.81 feet long and 142.39 feet wide, made Miami the first East Coast port to see a Neo-Panamax ship arrive via the canal’s new locks.

Energy Moves through the Canal

According to Canal Authority personnel, the U.S. shale energy revolution is promoting U.S.-originated canal traffic that they never expected.

Interviewed at Authority headquarters, José Ramón Arango S., Senior Specialist, Liquid Bulk Segment, pointed out that “the Panama Canal has always been heavily involved in energy shipments.” But today, he said, the rush of new reservations for ship transits through the expanded canal is almost all from the U.S.

And potential new U.S. energy ports abound:

1. Cheniere Energy, whose Sabine Pass liquefied natural gas terminal was the first of several American Gulf Coast LNG export terminals to go online, is expected to be joined by terminals nearby in Louisiana and also in Texas. Sourcing its gas from Cabot Energy’s Susquehanna County, PA, fields, Cheniere sent its first tanker through the canal in March, Arango said.
2. Now, with the expansion project finished, Cheniere has sent its first large LNG tanker through the canal’s new locks as well.
3. Another Cheniere terminal is being developed at Corpus Christi, TX, with more firm supply orders from Cabot’s Pennsylvania wells, while still another terminal is in development off the west coast of Florida. Still other Gulf ports are ramping up to ship large quantities of liquefied petroleum gas, a byproduct of natural gas processing and petroleum refining.
4. On the East Coast, Virginia-based Dominion Energy is racing to complete conversion of its Cove Point, MD, LNG terminal to export capability. Cove Point’s original customer, India’s Gail Corporation, is to be served through the Suez Canal, but Dominion executive Don Raikes, speaking at several U.S. energy conferences, made it clear Dominion also plans to serve customers in the Far East.
5. At Marcus Hook, PA, south of Philadelphia, still another LNG terminal—this one built by Sunoco to move the natural gas liquids butane, ethane, and propane—is rising on land that had for a century been home to the East Coast’s oldest oil refinery.
6. In Philadelphia, executives at the East’s biggest refinery, Philadelphia Energy Solutions, made a bid to build an oil export‒import terminal at the developing SouthPort, on the old Navy Yard grounds. PES already imports crude oil and exports refined products through Sunoco’s existing Fort Mifflin Terminal on the Delaware. But with delivery of up to four 100-car “unit trains” of crude each day from North Dakota’s Bakken Shale and plans afoot for a cross-country oil pipeline coming east, Philadelphia Energy is thinking ahead.
7. Sunoco Logistics, also looking to the future, recently revealed plans to move Utica Shale condensate, or light crude, from eastern Ohio to Marcus Hook over its Mariner East pipeline system.
8. On an island off Savannah, GA, an existing Williams Company LNG import terminal is undergoing federal regulatory review for conversion to export methane flowing south through the Transcontinental Pipeline, which was built to carry Gulf Coast gas to northern cities but now handles two-way traffic, hauling abundant Marcellus Shale gas supplies from Pennsylvania south.

Proof of Arango’s point was not long in coming. Cosco Shipping Panama, a massive container carrier, had to win an Authority lottery to become the first vessel to sail through the expanded canal’s “Third Set of Locks” on June 26. But as if to underscore Arango’s comments, the second ship through on June 27 was a Japanese-owned tanker, the Lycaste Peace, carrying a load of liquefied petroleum gas on its way from Houston, TX, to Hitachi, Japan. The LPG tanker Passat, owned by Avance Gas, followed in short order.

And if further proof was needed, in the month following the expansion project’s opening, 22 of the 53 vessels transiting the canal’s new locks and deepened channels have been tankers carrying U.S.-sourced energy resources out to the Pacific Rim.

U.S. Oil Boom Changes the Game

At a Canal Authority press briefing, top administrator Jorge Luis Quijano acknowledged that when the plans were laid out for the expansion project, petroleum shipments from the U.S. were not in the cards. But the shale drilling revolution changed things. Now, with the ending of the U.S. ban on oil exports, Panama also expects to be seeing crude oil shipments, with Very Large Crude Carriers moving American “light,” low-sulfur crude to ports all across the Pacific Seaboard.

Liquid Bulk Specialist Arango S., interviewed earlier, said that even could include fully loaded Suezmax tankers. High-sulfur “heavy” crudes, such as those produced in Venezuelan wells, would so weigh the tankers down that they could only be loaded half full, Arango said, but “condensate,” light crude, such as that produced from Texas’ Eagle Ford and the Utica Shale in Pennsylvania and Ohio, or the light crude coming from the Permian Basin in West Texas and eastern New Mexico, could more easily be moved through the canal.

Future-Oriented Planning

In today’s energy markets, where low commodity prices have crushed many a best-laid business plan and sent many energy producers (and some shippers!) to the bankruptcy courts, critics have questioned whether the Canal Authority made the wrong bet at the wrong time, looking to make money at a time when many of its potential customers are drowning in red ink.

Canal Authority Executive Vice President Ilya R. Espinosa de Marotta, an engineer involved in planning improvements for the canal for most of her 20 years at the Authority, dismissed that along with a litany of engineering issues raised in a recent New York Times report questioning the quality of the concrete used to build the locks, and complaints by the Panamanian Society of Civil Engineers, the Canal pilots’ union and the tugboat captains themselves about the decision to use tugs to move ships through the locks instead of the old system’s electric engines as just “old news.”

For as Authority Administrator Quijano said at the press briefing, it often is said that generals prepare for war with the army they’d like to have but fight their battles with the army they actually do have. Panama, he said, had long been working to build the logistics connection everyone would like to have, sure that the market would catch up to Panama’s forward-thinking audacity.

• It widened the Culebra Cut before the current Expansion Project began;
• Testing done over several years revealed that it was possible to institute two-way traffic in the Cut, and a new agreement with the Canal Pilots’ Union permits two-way “ship encounters” to begin; and
• Digging the new, wider, deeper shipping channels to the Cut from the 1,400-foot-long Cocoli Locks and their Aqua Clara siblings—don’t forget that the original canal locks will still be working—make it possible to greatly increase canal traffic.

How Panama Plans to Pay Its Bills

Thus, in Administrator Quijana’s view, Panama will see the tripling of canal transits it planned for. Using the old locks, big cargo and passenger ships were paying $200,000 to $300,000 a transit. Now, he said, a new, higher “toll structure” will enable Panama, in 20 years, to pay off the loans it took to build this $5.3-billion expansion project.
That’s despite a whopping $3-billion-plus claim for additional fees filed by the Spanish-led contractor team that built the new lock system. The Authority negotiated a moratorium on its collection, but that bill still is out there.
Still, Quijana was upbeat:

“We’ve been through these commodity price cycles before,” he said. “We know how it comes out.” In Panama’s view, the future is bright with promise. Clouds of doom? Bah, humbug!

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