Source: U.S. Energy Information Administration

On June 26, the Panama Canal Authority, the body that operates the Panama Canal, will inaugurate a third set of locks, which will allow for the transit of larger ships. This is the first such expansion since the canal was completed in 1914. With the exception of U.S. propane exports, the expansion of the Panama Canal is not likely to drastically affect crude oil and petroleum product flows.

Entrances to the Panama Canal are near Colon, Panama, on the Atlantic Ocean (Caribbean Sea) side, and near Panama City on the Pacific Ocean side. The canal expansion involved deepening and widening certain portions of the canal and constructing an additional, larger set of locks. Unlike the old lock system, which has two lanes of side-by-side traffic, the new set of locks will be one large lane and allow four transits per day, supplementing the 25 daily transits using the older lock system.

The wider and deeper navigation channels and larger locks allow for the transit of larger vessels through the canal. The maximum vessel dimensions in the old lock system, known as Panamax vessels, limited tankers to those of approximately 300,000 to 500,000 barrels of capacity of petroleum products like gasoline and diesel fuel. The newer lock systems allow for the transit of larger Neopanamax vessels, with estimated petroleum product capacities of 400,000 to 600,000 barrels.

Source: U.S. Energy Information Administration

Note: Ship capacities vary based on hull design, draft limitations, and types of products carried. Capacity estimates are for gasoline and diesel fuel.

The economics of shipping crude oil and petroleum products improve as the size of the ship increases along with distance traveled. Crude oil typically is loaded on vessels classified as Very Large Crude Carriers (VLCC) or Ultra-Large Crude Carriers (ULCC), both of which are too large to transit the Panama Canal fully laden, even through the new locks. Petroleum products are typically loaded on several smaller vessels, some of which can transit the existing and new canal dimensions, depending on a ship's hull design and restrictions on depth in water (draft). This means that most of the petroleum-related traffic through the canal will be petroleum products rather than crude oil.

In 2015, most of the petroleum-related traffic on the canal moved southbound, from the Atlantic to the Pacific. Diesel fuel and gasoline made up the largest share of southbound traffic, totaling 9.5 million long tons (a unit of measure for cargo volume) and 9.1 million long tons, respectively. Largely because of ship size restrictions, crude oil traffic was significantly smaller, and fairly equal in direction, with 3.0 million long tons going southbound and 2.6 million long tons going northbound (from the Pacific to the Atlantic).

Source: U.S. Energy Information Administration and Panama Canal Authority

Note: A long ton is equal to 2,240 U.S. pounds, used in shipping to denote cargo volumes. HGL is hydrocarbon gas liquids.

Previously, the size limitations of the canal created logistical bottlenecks for U.S. propane exports to reach markets in Asia, forcing shippers to perform ship-to-ship transfers. The new, larger Panama Canal locks will allow most Very Large Gas Carriers (VLGC), the type of ship that carries propane and other hydrocarbon gas liquids (HGL), to transit, likely reducing or even ending the practice of ship-to-ship transfers.

Principal contributor: Mason Hamilton