The Importance of the Expanded Panama Canal for the Delivery of Oil and Natural Gas is Overrated

10 june 2016

“The whole point of the Panama and Suez canals is delivery of containers from China to the US East Coast,” believes the chief adviser to the Head of the Analytical Center Leonid Grigoriev. Speaking at the press center of Russia Today, he said the increased efficiency of container deliveries was the most important result of the expansion of the Panama canal, while delivery of oil and natural gas through it is simply a side effect, albeit an important one.

While before the upgrade, deliveries first were taken to the US West Coast and then would travel by rail for 3-4 days before making it to the final destination; now, thanks to the expanded locks, deliveries can be made directly from Shanghai to New York via the expanded Panama Canal. However, freight companies will not necessarily take advantage of this new route. After the collapse of oil prices, the price of fuel oil that ship engines run on has fallen significantly and merchant ships began sailing from Shanghai to the US via South Africa: it is a longer route which means deliveries take longer but are cheaper because they do not have to pay for using the Suez Canal.

The expert noted that while the canal was being expanded the situation in the global economy had changed. The investments in the expansion of the canal are going to pay back gradually ‘in a stationary mode.’ In the past several years global exports have been growing slower than the global GDP and this, according to Mr. Grigoriev, is the most important development in the global economy after the great recession.

“The US will get a geostrategic opportunity to deliver some amount of oil and natural gas anywhere in the world including Asia relatively quickly via the Atlantic Ocean,” Mr. Grigoriev explained. However, the process may get expensive: in Europe, natural gas from the US is no cheaper than natural gas from other sources; if anything, it is more expensive and its production has fallen in recent years, and in the foreseeable future the US are unlikely to become a net exporter of oil or a major exporter of natural gas, the expert is confident.

“While the canal is being expanded, it is all about geopolitics, money and conflicts. But once it has been expanded it will start living its own life; settlements will spring up around it and tourists will start coming in,” Mr. Grigoriev believes. The expert reminded RT that history has already known canals that drastically cut delivery times and changed the human perception of distances, from the route from the Varangians to the Greeks to the Colbert Canal connecting the Mediterranean to the Atlantic. “The Panama Canal is a beautiful engineering wonder but with the latest changes in the economic situation taken into account, it does not alter key commercial flows of goods,’ Mr. Grigoriev concluded. V

See the video recording of the event on the website of the Russia Today’s Press Center.

The photos are the courtesy of Russia Today.