By Patti Domm

President Donald Trump's goal of making the U.S. more energy dominant means the Panama Canal will play a growing role in moving petroleum exports around the world.

The U.S. already is the world's largest energy exporter. The canal has been key for shipping liquefied petroleum gases $(LPG)$ from Gulf Coast refineries to growing markets in Asia. LPG is critical for many industrial applications in addition to being a popular fuel for backyard grills, gas fireplaces, and portable heaters.

Production of petroleum products including LPG has been growing as fracking increases oil and gas production in the Permian Basin spanning West Texas and southeastern New Mexico. The Trump administration's "drill, baby, drill" mantra is likely to result in more U.S. shale drilling and offshore drilling, as it strips away regulations and opens federal lands to more energy production.

At the same time, the Panama Canal Authority is looking to attract more LPG shipments. Energy products represent about 34% of canal transits, according to canal authority data for the year ended in September. The canal authority expects all types of energy exports from the United States to more than double by the end of this decade, and much of that could head through the canal.

The canal authority revived a plan to build a pipeline to carry LPG across the country from ships on its Atlantic side to ships in the Pacific. Last week, it completed a preliminary feasibility study for the pipeline to run alongside the 51-mile canal.

"We are entertaining the possibility of having a gas line to move some of the energy products coming from the (U.S.) Gulf to Asia, to complement the operation of the waterway itself," Panama Canal Authority administrator Ricaurte Vasquez Morales told Barron's in an interview.

Vasquez said moving the LPG to a pipeline would create more transit opportunities for tankers that carry liquefied natural gas $(LNG)$, another U.S. energy export that is expected to grow rapidly this decade. LNG is natural gas that is supercooled to a liquid form, making it possible to transport by ship.

The pipeline would also make the Panama Canal an even more critical commercial artery for U.S. energy, amid tensions with the Trump administration. Trump has said the canal should be given back to the U.S., which turned it over to Panama in 1999 as part of a 1977 treaty. Panama has said the canal should remain Panamanian.

"If it were not for the expansion of the Panama Canal in 2016, the United States fracking interests...would spend a significant amount more than they do right now" shipping to Asia, said John Feeley, former ambassador to Panama. The canal completed a project that year that doubled the amount of cargo it could transport and allowed for larger ships.

Vasquez said all the publicity surrounding the canal now has made it easier to gain interest in his plan to build the pipeline.

"We know there is a market," Vasquez said. Transits of LPG ships have been as high as 1,500 a year.

The Panamanian government sold 64,000 acres to the authority along the west side of the canal two years ago. The canal authority proposes using part of it to build a pipeline. It is studying how to legally structure a partnership or concession, since it cannot build the pipeline on its own.

Vasquez said there is an "interested party that has submitted a proposal, " but he declined to identify the company.

Dallas-based Energy Transfer disclosed in 2021 that it was conducting a feasibility study for an LPG pipeline in Panama. Energy Transfer didn't respond to Barron's request for comment on the current pipeline proposal.

"The U.S. has become a massive exporter of LPG, and LPG is critical for petrochemical feedstock," said Ed Morse, senior advisor at Hartree Partners. "The world is moving from one which had been transport fuel sensitive in terms of GDP growth to one that is now a combination of electricity intensive and petrochemical intensive."

Morse said as oil wells mature, they produce more gas and more natural gas liquids, so the Permian Basin should remain a big source for LPG.

Chastened by one of the worst droughts in its history last year, the canal authority sees the pipeline as a way to handle growing energy transport should it face more dry spells that limit the passage of ships. Water levels are now the highest they have been at this time of year in five years.

S&P Global, in its March oil outlook, said global LPG demand grew by 263,000 barrels a day in 2024 on an annualized basis and is expected to grow by 416,000 barrels a day in 2025. The U.S. is the largest exporter of LPG.

According to the U.S. Energy Information Administration, propane and butane exports to Asia will continue to grow. They are the key ingredients in LPG. It notes that U.S. prices are relatively cheap compared with international markets.

Write to editors@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

April 03, 2025 01:00 ET (05:00 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.