Trump will collapse the Panama Canal for Energy

Trump's goal: To control China via Panama and dominate the LNG market in Asia-Pacific. 

We predicted 12 years ago in our report. A new LNG Geopolitics has emerged. The USA has become the largest LNG exporter. It rapidly increased its market share in the EU. Now it is the turn of Asia Pacific.

Global demand for liquefied natural gas (LNG) is projected to increase by more than 50% by 2040, as the transition from industrial coal to gas gains momentum in China and South East Asian countries use more LNG for their economic growth.

Global trade in LNG reaches 500 million tonnes in 2025, up from 397 million tonnes in 2022; the market is larger but limited LNG supply is constraining growth. The opening of new terminals in the US and Qatar will grow the market.

China, Japan and South Korea, Taiwan and India's combined LNG imports account for about 57 per cent of the worldwide LNG supply. The shortest route to this market for ships departing from the former Gulf of Mexico, now known as the American Gulf, where the US LNG loading stations are located, is through the Panama Canal. The ship traffic of the Panama Canal is constantly increasing. For this reason, it was decided to expand it in 2006 and the construction of the Panama Canal was completed in 2016. However, as a result of the drought, the decrease in the water level in Gatun Lake, which is connected to the canal, is challenging the canal operation. In this case, ships have to wait 8-10 days. Many of the ships travelling to the Far East also change their route and head towards the Cape of Good Hope.

The US plans may include building larger LNG tankers to take part in the Asian LNG market and making the Panama Canal suitable for the passage of these tankers. However, before this expenditure is incurred, the canal must be owned by the US. Trump has therefore placed the Panama Canal on his list of priorities.

China's growing interest in the Panama Canal

China's strategic and economic interest in the Panama Canal is also influential in the US decision to take over the Panama Canal. Since China is a major producer country exporting mainly to the US and Latin America, this canal has a critical place in China's trade routes. Chinese goods can reach the east coast of the US and Europe faster through the Panama Canal. Alternatively, it is also an important transit point for exports to South American countries. Moreover, within the scope of China's global infrastructure project, the Belt and Road Initiative (BRI), the Panama Canal serves as a strategic transit point. Increasing Chinese influence in the region is influential in the US decision regarding the Panama Canal, but the decisive factor in the US decision is the increasing need of the Energy Sector.

US LNG production and the number of export terminals on the Gulf Coast are increasing

The increase in the number and capacity of natural gas liquefaction plants in the United States has fuelled the growth in global LNG trade. Increasing LNG demand in Europe with the embargo on natural gas exports from Russia to the EU also contributed to the growth of this market.

The number of US LNG filling terminals is increasing rapidly. Plaquemines LNG, the eighth US liquefied natural gas (LNG) export terminal, became operational in December 2024. When the other phases of this terminal are completed, the total US export capacity will increase to 15.4 billion cubic feet per day. When the three other US LNG export projects currently under construction (Golden Pass LNG, Rio Grande LNG and Port Arthur LNG) are completed, LNG export capacity is estimated to increase to 21.2 billion cubic feet per day by 2028, making it necessary for the US to explore new markets and the most suitable routes today.

In 2022, the US became the world's largest LNG exporter.

US LNG exports in 2022 increased by 16 per cent compared to 2021. In the first half of 2022, after the new LNG export facility became operational, the US became the world's largest LNG exporter for the first time. Qatar and Australia remain the top two global LNG exporters in the second half of 2022 as one of the LNG export facilities in the US is out of operation.

Panama Canal key to US LNG trade

The United States has the largest share, accounting for 75 per cent of total cargo transport through the canal. In terms of cost, competition and strategic importance, the Panama Canal has always been important for US trade. However, this importance has been further enhanced by the US's determined policy on LNG exports.

Working principle of the canal, transit time and fee

Due to the height difference between the two oceans it connects, the Panama Canal works with the locked pool system, which acts as a lift. The ship entering the canal is raised and lowered to the water level at certain intervals along the canal according to the ocean it will travel with the locked pool system and its passage is ensured. Ships enter the pool system 3 times along the canal. When they enter the pool at each point, water is pumped in and the ship is raised. In the reverse route, water is drawn from the pool where the ship is located and it is lowered to the same level as the waterway it will travel.

It can take 8 to 10 hours to cross the Panama Canal. With the widening project completed in 2016, the Panama Canal allowed the passage of Neopanamax class ships with a length of 366 m, a width of 51.25 m and a draft of 15 m. The dimensions of LNG carriers produced in the US generally fall within these limitations, but Q-Max LNG tankers exceed the channel limitations. In addition to these limitations, factors such as water levels and weather conditions in the Panama Canal may lead to transit restrictions from time to time. For example, due to the drought in 2024, there was a decrease in the transit of LNG ships.

The transit fee for a ship through the Panama Canal can be up to 300 thousand dollars depending on the weight and type of cargo it carries and the size of the ship. In addition, in some cases, additional fees may be applied. These additional fees can increase starting from 15 thousand dollars. In addition, the fees charged to ships wishing to make an emergency passage can exceed million dollars. These fees are determined by the Panama Canal Authority every year.

65 per cent of the LNG market is in Asia Pacific

In 2024, 55 per cent of total US LNG exports went to Europe, 34 per cent to Asia, 11 per cent mostly to Latin America and a few cargoes to the Middle East, mainly Egypt and Jordan.The Asia-Pacific region has the largest share of global LNG imports. In 2023, approximately 65% of world LNG imports were realised by this region. The largest importer countries of the market are China, Japan, South Korea.

In the Asia-Pacific LNG market, the USA is in competition with Australia and Qatar, which have the advantage of geographical proximity to the market. Russia is also trying to create space for itself in the market. On a company basis, Shell, Exxon Mobil, Total Energies and giant Asian-based energy companies are important players in the market.

Panama Canal Expanded but still insufficient

When the Panama Canal expansion was planned and approved in 2006, LNG exports from the US to Asia were not considered, and the US was a major importer of LNG that year. Today, the US has become one of the world's largest LNG exporters and badly needs the management of the Panama Canal to reach the largest market by the shortest route. The Panama Canal Authority (ACP) manages the canal.

In 2016, the widening of the Panama Canal to accommodate larger ships with bigger beams and larger draft was a big deal for LNG shippers looking to lower the per-unit costs of delivery to Asia. But as more shipments sought to transit the canal, waiting times increased. This problem has also led to a bottleneck that poses a challenge for future projects hoping to minimise costs in a highly competitive global LNG market.

In 2012, the US Congress commissioned a report on the EU's energy dependence on Russia and how to reduce it. Due diligence was carried out. The conditions were ripe and the US, through the Russian-Ukrainian war, diverted the EU away from Russia's energy dependence and tied it to itself. With this geopolitical conspiracy, the US created a large and continuous LNG market for itself in Europe. This development also relieved the US shale gas and shale oil sector, which is seeking to open up to foreign markets. The fact that natural gas prices in the EU are five times higher than in the USA has made the European market very attractive for the US Energy sector.

Despite the European market, plans for new markets were needed for the US energy sector, which continued to develop rapidly as planned. As a result, the USA entered Far East Asia, the world's largest LNG market. However, there are countries in that region such as Malaysia, Indonesia, Russia, Qatar and Australia, which offer low prices with the advantage of geographical proximity to the market. This situation has greatly increased the importance of the Panama Canal for US LNG exporters. President Trump made a statement to fulfil this importance as soon as possible. In any case, the Panama Canal would be under the management of the USA.

In 2016, the canal was expanded and new passages were added to the canal. However, capacity may still be insufficient. Panama Canal management imposes some restrictions due to reasons such as the increase in traffic and the decrease in the water level in the lake connected to the canal. In this case, ships that have made reservations in order to secure canal transit slots can transit. For this, an extra large fee is paid each time. These fees to be paid for priority canal transit reservations are redetermined every year and increase the costs of US natural gas exporters. Due to the long waiting times in the Panama Canal, ships are diverted to other routes.

All these developments mentioned above force the US to take over the management of the canal. When the USA takes over the management of the canal, it may also consider investing in increasing the capacity of the canal. The canal reduces the Asian market route by approximately 5000 kilometres. We had discussed and explained in detail the impact of the US shale gas revolution and the resulting increase in LNG exports on energy geopolitics in our 2013 report. Developments have revealed the accuracy of our predictions

During Trump's second term, new LNG terminals will be opened in the US. Unlocking the Panama Canal is an important task for Trump and he has made it clear that he will fulfil it. This is all the more important for the US given China's growing economic and strategic interest in the Panama Canal.