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©Rob Bertholf The Panama Canal has been keen to push for greener ships, albeit without huge incentives for owners

Going green

The expanded Panama Canal is now looking to reinforce its environmental credentials, John Rickards reports

Since the start of last year, the Panama Canal Authority (ACP) has been keen to promote the waterway’s green credentials – traditionally its putative GHG savings compared to the alternative voyage around South America – and to provide some manner of incentive to more efficient and environmentally sound ships passing through.

In October last year, the ACP launched its own emissions calculator too for shippers, describing it as “an innovative new tool which will offer shippers the most accurate assessment of their carbon emissions, rank those who have reduced the most emissions by transiting the Canal versus alternate routes, and encourage action to reduce carbon footprints”.

 

“The Panama Canal has always been committed to reducing its carbon footprint and impact on the environment,” said Panama Canal Administrator Jorge L. Quijano. “This new tool allows us to bring that same commitment to our customers, giving them the information needed to make a more informed and environmentally conscious decision when planning their routes.”

 

The calculator works by “leveraging technology already aboard the world’s maritime fleet to capture an array of data on shippers (e.g. vessel type, size, capacity, speed, fuel consumption and route) and provide the most accurate measurement of the GHG they emit, including the total emissions saved by choosing the Panama Canal over other routes” according to the ACP. Data is then pooled to provide an overall “CO2 Emissions Reduction Ranking”.

 

The ACP said it would also use the tool to reduce its own carbon footprint, measuring and tracking emissions from its domestic day-to-day operations to support the planning of a low carbon strategy that will eventually lead the canal to become carbon-neutral.

 

The ACP launched its ‘Green Connection Award’ in 2016, going to any transiting applicant ship with an Environmental Ship Index score of 35 or better, which has since been given to 85 ships (at last time of reporting), as well as the Environmental Premium Ranking, a more complex measure based on ESI, EEDI, NOx emissions or LNG use.

 

However, the award merely provides qualifying vessels with a plaque, perhaps explaining why it’s only 85 ships who’ve taken it up when the Canal saw over 13,000 transits last year, and the EPR, which has been awarded to 275 vessels, a percentage increase in the “number of transits” criteria or either 10 or 20% used to determine vessel priority when booking transits.

 

The ACP’s desire to promote environmental consideration has to be applauded, but its incentivisation would seem to be a little lacking, with no great financial draw for ships to perform better.

©Rob Bertholf LNG could have a part to play in Panama’s near future

Operators also need to submit the necessary paperwork to determine whether they qualify. Consequently there has only been a small percentage uptake.

 

Nevertheless, the obvious winners under the current EPR system are LNG-powered vessels, which automatically hit the second, 20% tier just for having a gas-powered engine. Panama has become more welcoming to LNG carriers in the past couple of years, relaxing its rules banning them from taking bunkers at any of the Canal zone’s anchorages in late 2016 to allow bunkering in the Explosives Area of the Pacific Anchorage. This tentative relaxing of some of the rules regarding LNG shipments can only boost the chances of building LNG infrastructure on the west coast to serve LNG-fuelled vessels.

 

Indeed, last year France’s ENGIE group and AES Corporation announced they were expanding on their existing partnership to market and sell LNG to third parties in the Caribbean, via AES’ Andres regasification facility in the Dominican Republic,
with a new joint venture in Colón.

 

The venture is to be based at the new Costa Norte LNG terminal under construction and due to be completed this year, which is owned 50/50 by AES and Inversiones Bahía. The terminal’s total capacity will be approximately 1.5 million tonnes per annum, of which 25% will be used for the 380 MW AES Colón CCGT currently under construction on the same site. The remaining capacity will be available for the joint venture to sell to third parties, including for bunkering.

 

In a statement at the time of the announcement, the companies said: “ENGIE’s and AES’ objective continues to focus on providing a cleaner and more cost-effective alternative to oil-fuelled power generation, while at the same time satisfying a growing need for natural gas in Central America and the Caribbean. This new agreement will pave the way for ENGIE and AES to supply LNG to industrial customers, develop small scale demand and provide bunkering services.”

 

World Bunkering spoke to ENGIE to get an update on the project, given its potential importance for supporting the establishment of LNG bunkering in Panama itself.

 

“The construction at the Costa Norte terminal by AES is progressing well and no delays are expected,” a company spokesperson said.

 

“As far as our marketing progress goes, we have started to get traction with a number of end users, both in the retail market as well as in the power generation market in Central America.”

 

“We have already seen some successes of that same model in the Dominican Republic where we also have a partnership with AES, so we are optimistic.” The company wouldn’t be drawn on the scale of the potential bunker market once the facility is up and running, but did say: “The fact that there is an existing LNG terminal will enable more attractive terms for LNG than if all the infrastructure had to be built.”

 

That market could be sizeable, though. The Canal saw a total of 13,548 transits in its last fiscal year, up 3.3% on 2016. However, thanks to the larger neopanamax vessels now able to transit the expanded canal, the growth in traffic translated into a 22.2% increase in total annual tonnage to 403.8m Panama Canal tons (PC/UMS).

The ACP predicts that for FY 2018, transits should remain largely the same but tonnage should rise by an additional 6.5% as average vessel size continues to grow.

 

Traffic remains dominated by box ships. The container segment continued to serve as the leading market segment of tonnage through the canal, accounting for 35.3% of the total cargo tonnage. Tankers, including gas carriers, represented 26% of the total, followed by bulkers and vehicle carriers, and 68% of the total cargo either originated in or was destined for the US.

 

With container ships representing the segment with the fastest uptake of LNG fuel use, and the US equally proving a rapidly growing source of bunkering facilities and infrastructure itself, it seems likely that box traffic serving the US should form one of the prime markets for LNG use, and having the capacity to serve ships on those trades would only benefit Panama.

 

The country remains a key bunker location regardless, of course, second only to Brazil across Latin America. The latest figures available at time of writing, covering the first nine months of 2017, showed that fuel sales in Panama were up 19% year-on-year to 3.48 million tonnes. The vast majority remains fuel oil, but MGO rose a healthy 33% to 259,543 tonnes as part of that total. As with the canal’s overall cargo throughput, the rise in sales volumes would seem to tally with the increased size of vessels transiting the canal rather than increased bunker calls per se. If so, and if the ACP’s own estimates hold water, figures for next year should continue to rise, albeit by a much

smaller margin.

 

Happily for Panama, the once-touted – though also forever-doubted – rival project proposed for Nicaragua seems to have evaporated for the time being. While the Chinese development company, HKND, awarded the huge concession to build the canal was still promoting its presence in the country as late as November, no further work seems to have been carried out on the ground and official channels have gone silent on the topic. Local press reports that despite official ground-breaking work on a new 13km service highway between Miramar and the Bay of Brito, intended to bring in heavy machinery for canal infrastructure work itself, taking place to much fanfare in 2014, there is still no paved road, just a dirt track, and none of the other infrastructural additions HKND promised before cutting began have appeared elsewhere in the country, nor has any construction work even gone out to tender.

Indeed, quite the opposite; at the start of last year, Nicaraguan vice president Rosario Murillo announced a revival of the Costanera coastal highway project to aid tourist traffic along the west coast

of the Rivas Isthmus, with a reported finish date in 2019.

The route for the US$120m project takes it clean across

where the canalwould have gone.

 

Doubts over the project’s economic and engineering viability dogged it from the start, and redoubled when HKND head Wang Jing saw much of his personal worth tanked by 2015’s Chinese stock market crash. With Panama’s expansion completed smoothly, and Suez too, as well as slower growth in the Chinese economy and a shift in Asian manufacturing southward, there is no longer any obvious demand for such a route even as box ship sizes continue to rise. With the huge engineering challenges involved given Nicaragua’s terrain and seismic instability, perhaps there never was. A report initially commissioned by HKND on the project’s economic viability from US consultants McKinsey & Company was never released, if it was ever completed, HKND claiming its contents were a “commercial secret”.

 

It remains to be seen if there’ll be any attempt to salvage the project. HKND did not respond to requests for comment.

 

©Patrick Denker Expansion has seen a solid jump in bunker sales

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