05.10.2022

Panama and the shale revolution: what do they have in common?

The shale revolution in the United States has allowed the Panama Canal to increase revenues over the past two years tenfold. Why did this happen?

The transportation of liquefied natural gas and petroleum products from the United States is the fastest growing and most promising business of the Panama Canal, writes the Wall Street Journal, citing a statement by the head of the canal administration, Jorge Luis Quihano.

The tanker transportation of American natural liquefied natural gas through the canal began in 2016 after completion of the expansion of its lock cascade. Modernization allowed to triple the tonnage of vessels and tankers carried through it.

During this period, the newspaper notes, gas supplies increased to 6 million tons, although earlier this type of fuel was almost not transported. This year, as expected by Kihano, this figure will double more.

To date, according to the newspaper, through the Panama Canal, 45% of US liquefied natural gas and 46% of liquefied petroleum gas are exported. In the next couple of years, according to Kihano, gas transportation will become a leader. Currently, American gas tankers provide 10% of the total annual revenue from the use of the canal and 38% of the proceeds from the operation of new expanded gateways.

According to the newspaper, fast-growing consumers of liquefied natural gas from the USA are China, South Korea, Mexico and Japan.

In May, as stated by Kihano, the Panama Canal administration registered a new monthly record for transporting goods through the canal: 1.23 thousand ships, carrying a total of 38.1 million tons of cargo. The previous record was registered in January 2017: 1.26 thousand vessels carrying 36.1 million tons of cargo on board, finanz.ru writes.

June 26 marks exactly two years from the moment the movement along the new lock cascades of the canal began. Work on expanding the waterway was started in 2007. Each of the new locks is 426.7 m long, 54.8 m wide and 18.2 m deep, which allows vessels with a capacity of up to 14 thousand containers to pass through them. .

US shales threatened by infrastructure crisis

The factors restraining the growth of oil production within the Perm basin are starting to worry the oil market more and more.

Some analysts even started to say that shale production in the USA may not justify the high hopes placed on it.

The excitement in West Texas predictably led to numerous problems at all points of the value chain. Oil drillers are facing rising prices for labor, drilling rigs, services and land leases. Due to the low throughput of the pipeline, oil prices have to be reduced.

A new Rystad Energy study points to such constraints as a lack of pumps and proppant (granular fracturing material). When the wells are drilled, companies install equipment connected to pressure pumps that inject water, proppant and chemicals underground to reach the source.

Obviously, for those who manufacture and sell this equipment, the golden time has come. “We are a little behind right now, but that’s fine with us,” said the vice president of the unnamed pump manufacturer.

Rystad Energy predicts that by the end of the year, new pumping capacities of 2 million horsepower will be commissioned, which is almost 10% more than in 2017. This should help eliminate the deficit.

At the maximum of its capabilities and the proppant market. But this too should be a temporary phenomenon. Rystad Energy expects proppant production to increase by 52 million tons in 2018, and in the immediate vicinity of the rigs, which is extremely important, since so far most of the proppant has been transported to Texas from Wisconsin and Minnesota.

However, another problem arises here. A large number of trucks are needed to transport proppant, but the truck market is also operating at the limit. It should also be borne in mind that constantly moving multi-ton trucks quickly wear out roads, which jeopardizes the rhythm of supplies.

“We may face the same situation as at Eagle Ford many years ago: the roads were very badly broken, but nobody wanted to close them for repairs,” a senior E&P representative told researchers.

However, this year’s bottleneck could be pipeline throughput. According to the Wall Street Journal and Goldman Sachs, oil production in the Perm basin will reach 3.18 million barrels per day in May, while the total pipeline capacity is 3.07 million barrels per day.

The pipelines are completely full, so Midland oil has to be discounted. Additional volumes, most likely, will have to be transported by road, which will raise the final cost.

All of these factors increase costs and are likely to raise the breakeven even further. According to WSJ estimates, Perm basin drillers may face a 15% increase in production costs this year.

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