The potential for a rapid build-up of liquid and gas tankers in the region is marked with multiple laden vessels now indicating delays for Suez transit. As of Wednesday morning there were seven vessels carrying crude, 15 carrying refined products, five LNG vessels and two LPG carriers either sat waiting or approaching the canal. While attempts to clear the ship from the canal continue, this queue will continue to build. A salvage squad from the Netherlands will attempt to dislodge the ship beginning Thursday.
The LNG market has already had a taste this winter of what can happen when logistical pinch points are tested to the maximum. East Asia pulled significant quantities of last minute cargoes into the region, straining the limits of the Panama Canal and forcing shippers to seek alternative routes. The options for shippers in the immediate aftermath of the incident in the Suez Canal are far more limited. As delays continue, shippers will have to broach the unpalatable decision of whether to make a u-turn and head for the Cape of Good Hope or wait it out in the Red Sea and Mediterranean. Given the considerable increase in voyage duration, it is unlikely that anyone already in-situ will divert (Suez to Amsterdam at 12 knots is just over 13 days via the canal or 41 days via the Cape). This could cause shippers not already committed to reassess their options, but there would still need to be notice of longer running delays before those decisions were made (it takes just under 24 days via the canal from Ras Tanura to Amsterdam vs 39 days via the Cape).The event highlights the relative fragility of the on-water trading system, particularly for those flows for which Suez Canal transits make up a higher percentage of total volumes moved.
Since a recent low of 9.7 transits per day in July 2020, the number of tankers moving though the Suez has increased steadily, reaching 12.3 per day up to yesterday, before the blockage of the canal. Over the last couple of years, 80% of these transits have been for laden vessels.
Prior to the spike in LNG moving to Asia from the US this winter, the number of LNG vessels transiting the canal in any direction and laden/ballast was 1.8 vessels per day (55% laden on average), a much more even distribution than for liquids. Following the increase in LNG cargoes being pulled into Asia from the Atlantic Basin this winter, transits through the canal hit a new high in January 2021 of 3.4 vessels per day, 2.1 of which were laden (62%). This has since settled back down to 2.6 per day in total and 1.2 per day laden so far in March.
Considering the current level of liquids tankers and LNG carriers transiting the canal compared to previous highs, there is scope to increase movements once the canal has been cleared. At that point the pressure from the rest of the shipping fleet to clear the backlog will need to be taken into account.
Crude volumes spiked through late-April and early-May following a short-lived price war between Saudi and Russia
Despite relatively limited crude flows through the Canal, the closure puts pressure on regional markets. In 2020 Europe imported 550 kbd of crude from East of Suez sources of which 520 kbd transited through the canal. This is less than half the volume that transited the canal in 2017 (1.19 mbd). In addition to these volumes are flows ported through the SUMED pipeline system as partial discharges from VLCCs in the Red Sea to then be reloaded in the Mediterranean. Whilst the route is highly important for flows of crude into Europe from the Middle East, as a share of total crude imports, it only represented 5.6% of total arrivals in 2020. Even if considering that 2020 was an abnormal year for crude demand, flows via the Suez Canal accounted for just 7.2% of imports in 2019.
Unlike the East to West flow, the volume of crude headed from West of Suez markets to the East has become more significant over time, with cargoes from the North Sea and Russia often providing the marginal barrel to the East. Imports into South and East Asia via the Suez Canal hit a high of 1.27 mbd in June 2020, albeit arrivals later bottomed out at just 310 kbd in November of the same year. Flows from Europe (including Russia) were the primary cause of such a large swing, although a drop in flows from North Africa during the worst of the pandemic driven demand crash contributed. Flows via the Suez have since rebounded, although remain below 1 mbd on average through the last quarter.
In 2020, 1.54 mbd of global clean product imports flowed through the Suez Canal, 8.8% of a total of 17.69 mbd. Of the 1.01 mbd imported into East of Suez markets from the west in 2020, 599 kbd passed through the Suez Canal whilst 186 kbd went via the Panama Canal and the remaining 228 kbd routed via the Capes. Heading in the other direction, West of Suez clean product imports from the east saw 886 kbd transit the canal out of a total of 1.5 mbd.
Moving from west to east, the single biggest product group through the Suez Canal is naphtha, a product used as a petrochemical feedstock across the region. Driven by soaring demand for PPE, last year saw a significant increase in imports of naphtha in the east from the west, hitting 21.5 Mt, up from 17.1 Mt in 2019. Of these imports, 68.8% passed through the Suez Canal.
Middle distillates comprised the bulk of flows from east to west. Despite the downturn in demand last year, 34.8 Mt of gasoil/diesel and 21.0 Mt of jet/kero (a more significant y/y decline due to the collapse in aviation) passed from east to west. The gasoil arb via the Suez represented 65.2% of east to west flows in 2020. Last year saw just over half of all the jet move via the Suez (11.0 Mt), although it should be noted this was nearly half of that shipped through the canal in 2019 (20.3 Mt).
At present there are two middle distillate cargoes waiting to travel into the Med at Suez. The first includes an aframax carrying 99 kt of ULSD, which loaded at Yanbu and has until recently been indicating “For Orders”, and the second is a Panamax carrying 64 kt of jet from Jamnagar bound for Europe, potentially Rotterdam. There are a further six clean product tankers in the region carrying a mix of gasoline and as yet undetermined clean products. Sitting off Port Said in the Mediterranean are 2 vessels carrying 131 kt of naphtha bound for East Asia.
Tonnage of LPG transiting the Canal hit record highs in January amid diversions from Europe to East-Asia
Arrivals in March have subsequently dropped as demand pressures have waned, with just 1.44 Mt expected to arrive in the region having transited the canal. The seasonal nature of this flow means that we are unlikely to see pressure put on LNG shippers moving cargoes to the east as the longer and cheaper cape routes are favoured. The Golar Tundra, the only LNG carrier actually stuck in the canal, had not travelled far having just loaded 73 kt from Idku in Egypt on the 21st March before heading to Asia apparently unsold, still indicating “For Orders”. Two further vessels are waiting in the Mediterranean and three in the Red Sea.
European LNG imports are more reliant on flows through the Suez Canal. Prior to the summer 2020 downtown, the previous couple of years had seen imports arriving via the Suez averaging 25 cargoes per month (19.4% of total). This compares to 104 per month via other routes. Since mid-2018 the growth of exports from Russia and the US have reduced the dependence on imports from Qatar considerably. Whilst this helps with long-term diversity of supply, it cannot address the problem of short term blockages in the canal, with demand centres needing cargoes in the very short-term. Fortunately this event has happened coming into the shoulder season when demand is typically lower following the winter peak. Imports at this point should allow for larger storage injections from piped gas. That said, natural gas storage levels are coming out of the winter at low levels after the region stepped away from purchasing expensive LNG cargoes through December and January as demand for gas was far greater in East Asia.
LPG transits through the Panama Canal range between one to ten VLGC equivalent cargoes per month, heading from west to east. In a similar story as for naphtha, flows of LPG from West of Suez to east have increased steadily over the last six years as petchem demand has surged. Increased flows from the US through the Panama Canal have driven the bulk of this increase but 2020 also saw record flows through the Suez Canal at 2,484 kt. This still only represented 8% of total west to east flows.