Panama Canal upgrade could boost Texas’ burgeoning international trade, LNG market

Dave Montgomery Austin Correspondent

AUSTIN – A multibillion-dollar expansion of the Panama Canal is expected to open lucrative new Asian markets for natural gas from the Barnett Shale while enhancing Texas’ stature as the nation’s leading export state. The canal was heralded as an engineering marvel after it was carved through the jungles of Panama almost a century ago, providing a 51-mile shortcut between the Atlantic and Pacific oceans.

Now modern-day construction crews are deepening and widening the canal to accommodate mega-ships of the 21st Century. Planners originally hoped to complete the $5.2 billion project in 2014 – the canal’s centennial anniversary – but are now working toward a likely finish date in 2015. Although the ambitious undertaking deep in the tropics is far below the radar of the average Texan, the project has generated intense interest within a broad sector of groups and individuals who would be affected by the development, including transportation experts, shippers, energy groups and local officials.

“Overall, it’s going to be a heck of a boon to our part of the country,” said Tarrant County Commissioner Gary Fickes, vice-chairman of TEX-21, a group of officials urging the state to take full advantage of the canal expansion. Study after study has spotlighted what could be a big boost for natural gas producers in North Texas’ Barnett Shale and other parts of the state. Gargantuan ships that carry liquefied natural gas and are unable to traverse the current canal would be able to ply the expanded transoceanic waterway, making natural gas from Texas available to consumers in China, Japan and other parts of Asia. “The emerging LNG export market resulting from energy developments in the state represents a major opportunity,” said a report prepared for the Texas Department of Transportation in late 2012.

- FWBP Digital Partners -

Asian demand Ed Ireland, executive director of the Barnett Shale Energy Education Council, said the new access to Asia would put Texas natural gas in markets that are commanding considerably higher prices than in the United States, where natural gas has been in a prolonged slump. Natural gas prices peaked at nearly $14 per million British Thermal Units (BTUs) during the heyday of Barnett Shale production in 2008, but have since fallen to around $3.70 per million BTU. By contrast, natural gas prices are nearly five times higher in many parts of Asia, where availability is scarce and demand is high. “I think it could be a big boost to Barnett Shale production,” Ireland said of the potential new markets in Asia.

Demand for natural gas in Asia has been particularly evident in Japan, which has dispatched several delegations on fact-finding tours of Barnett Shale production sites over the past year, Ireland said. Japan has become desperate for natural gas imports as it seeks to curb its reliance on nuclear power following the devastating tsunami that caused a meltdown at the Fukushima nuclear plant in 2011, Ireland said. More than 20 Japanese energy executives, representing a group called the Japan Heat Supply Association, plan to visit the Barnett Shale next month (Oct. 29-31), said Osuke Ishiguro of JTB International Inc. in Torrance, Calif. Ishiguro, who is coordinating the visit, acknowledged that the trip is partly driven by the shortage of natural gas in Japan. “This is a big market,” Ireland said. “It could be a big deal.” Natural gas from the Barnett Shale and other fields would be shipped by pipeline to ports equipped to handle LNG exports and cooled into liquid. After being reduced in volume by about 600 times, the liquefied gas would be transported by cargo ships and warmed back to its gaseous state after reaching its destination.

LNG potential Potential LNG transports through the Panama Canal are still well into the distance since the opening of the canal is at least a year or two away and nearly all of the Gulf Coast ports applying to export LNG are still going through the federal permitting process. About five ports in Texas and Louisiana have applied for LNG permits. Still, the prospect of an opening into the populous Asian markets has created high hopes in the energy industry, no matter how long it takes.

“If we can encourage exports of LNG and open it to a free market, we are very supportive of that, and if it means jobs for Texas, that’s a good thing for us,” said Deb Hastings, executive vice president of the Texas Oil and Gas Association. Launched by Panama in 2006, the expansion project would create a deeper and wider third lane and a new system of locks to accommodate much bigger ships capable of hauling at least two-and-a-half times the cargo of vessels that currently go through the waterway. By some accounts, one of the new ships could handle enough cargo to more than fill two Texas state capitols. What will it mean for Texas? That question has been under study by experts since the project started. Many agree that it holds potential benefits, though they differ on the extent. Two Class One railroads – Fort Worth-based BNSF and Omaha-based Union Pacific (which also has a major presence in Fort Worth) – say it will have little impact on their east-west freight shipments between West Coast ports and the American heartland. But a number of local officials who belong to the transportation advocacy group TEX-21 – Transportation EXcellence for the 21st Century – say the expansion is brimming with economic possibilities for Texas and are urging the state to move aggressively to seize the opportunity. Members of the group have visited the construction site and are planning a return trip in December. TEX-21 officials led by the group’s chairman, North Richland Hills City Councilman Tim Welch, appeared before the Texas Legislature’s House Transportation Committee last year to propose a number of steps, including a possible statewide bond issue to deepen Texas ports to accommodate the larger ships.

- Advertisement -

The cost of infrastructure improvements at Texas ports has been estimated at between $1.4 and $3.5 billion, according to one study, although canal boosters say those projections are probably low. “Nothing is really being done,” said Welch, who is calling for a “Texas-sized” statewide strategy to accelerate the flow of Texas exports by linking coastal ports with inland distribution centers and manufacturing facilities. David Dean, president and CEO of Dallas-based Dean International, the group’s policy consultant, says Texas is positioned to become the nation’s “the third coast” if it aggressively responds to the expansion. Texas has been the No. 1 exporting state for 11 straight years, according to the U.S. Commerce Department. Exports from the Lone Star State totaled $265 billion in 2012, a 5.4 percent increase from the previous year. Petroleum, chemicals, coal products, and computer and electronic products topped the list of Texas exports. The state’s top customers: Mexico, Canada, China, Brazil and the Netherlands.

A 2011 study commissioned by the Texas Department of Transportation projected that the canal expansion will enable Texas to export an additional 15 million tons of cargo to destinations in the Pacific. The state is expected to receive an additional 6.6 million tons of cargo from the Pacific via the Canal, according to the study.