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Panamá Stepping on the Gas

An energy crisis could turn Panama into one of Central America’s main centers for generating and transmitting power. The small country is diversifying its energy matrix and natural gas is the latest ingredient in a formula for success.

 By Juan Abelardo Carles
Photos: Cristian Pinzón

In 2013, Panama accumulated all the ingredients for the perfect energy storm. Economic growth in the country had remained close to a two-digit percentage over the preceding decade and energy consumption had increased at a rate of 6% per year. Meanwhile, El Niño phenomena were increasing in intensity and duration, compromising the contribution of large hydroelectric plants to the country’s energy matrix.

In addition, oil prices over the previous fifteen years had proven highly volatile. At the beginning of the 21st century, the price of a barrel was around $10; it then shot up to $147 per barrel in September 2008 before plummeting to $30 in early 2009 and rising again to $110. Finally, in October 2014, the price fell to around $40 a barrel in a downward trend that may reverse in the near future. This instability caused the prices of gas, the second major component of the country’s energy supply, to rise.

Although the government attempted to mitigate the crisis by subsidizing the lower consumption segment, rationing began in mid-2014 and included, among other measures, changes in schedules of schools and government offices, as well as reduced operating schedules for businesses. Around this time, the government announced a reorganization of the energy sector, the first fruits of which are only now beginning to be seen, three years later. Efforts were aimed at reducing dependence on oil and increasing the nation’s commitment to cleaner renewable or non-renewable sources. Has Panama’s energy perspective changed? To answer this question, at least in part, we took a look at the interoceanic region’s Caribbean coast, where two large LNG (liquefied natural gas) power generation projects have begun.

The most advanced of the two projects is AES Colón, a subsidiary of the North American AES International. The company has been present in Panama for 18 years and has been involved in several energy projects totaling close to 1.4 billion USD. Its investment in AES Colón, located on Telfers Island on Panama’s Atlantic coast, totals 1.150 million dollars. This facility will be the first LNG power generation plant in Central America and will supply Panama with 380 megawatts (MW) of power. We visited the plant with Miguel Bolinaga, President of AES in Panama, who comments that “this plant is strategic given our goal for LNG to contribute 9% of the country’s energy matrix by 2018, reducing our dependence on oil to about 45%.”

On the other side of the Caribbean entrance to the Panama Canal, near the Alejandro River community, Martano, Inc. is about to begin construction on another natural gas power plant. “We were awarded the 15-year contract to supply Panama’s energy distributors with 350 MW per year, starting in 2020. We’ve completed the environmental impact studies and are now in the design stage. We’re scheduled to begin construction before the end of this year,” explains Pastor Cabrera, Panamanian technical director of Shanghai Gorgeous Investment Development, a company originally from China and Martano’s parent company.

Both investments are designed to process more than enough LNG to meet Panama’s energy consumption projections. AES Colón’s contracted capacity of 381 MW represents only 25% of the facility’s total capacity. Martano has the potential to generate 450 MW, although the Panamanian government has contracted only 350 MW. Naturally, both companies have the future growth of local energy demands in mind, but the strategy goes beyond that and promises to increase the interoceanic region’s already solid platform of logistics services, making it a regional center for the reception and redistribution of LNG –a “filling station” for both the global merchant fleet and industrial use.

This ambitious plan grew out of two globally significant events. The first was the earthquake and subsequent tsunami that struck the northeastern coast of the Japanese archipelago in March 2011. It compromised the safety of the vital nuclear power station in Fukushima and caused decades of contamination worldwide, shifting public opinion against nuclear power plants. Following this disaster, LNG gained popularity as an alternate energy source. The recently expanded Panama Canal is now open to ships carrying up to 177,000 cubic meters of LNG. Because LNG is the least polluting of fossil fuels, the ACP believes its passage through the canal marks the opening of a “green route,” connecting the natural gas fields of the Gulf of Mexico with markets in the Far East.

At the same time, commitments made by the signatory countries of the International Convention for the Prevention of Pollution from Ships (MARPOL) between 1973 and 1978 enter a critical stage starting in 2020, putting pressure on the global merchant fleet to adopt low sulfur and other non-toxic fuels (0.5% of total emissions). LNG would seem to be the most suitable means of meeting this challenge. According to the magazine LNG World Shipping, LNG powers approximately 600 of the ships in the world’s merchant fleet. However, leading global shipyards plan to expand this number to meet the challenge over the next the three years. The vast Hyundai shipyards in Korea, for example, have commissioned 97 new LNG-powered ships.

In fact, the Panama Canal Authority considers LNG supply a key factor in their strategy to supplement revenue from the transit of ships. The ACP is studying the feasibility of an LNG terminal, to be built with funds from the United States Trade and Development Agency (USTDA). This study is based on a market analysis that includes the developments and initiatives currently being implemented in the country and across the region. According to ACP sources, this study began in November 2016 and is expected to conclude during the second half of 2017. The capacity and location of this facility, which would also provide power to the Panama Canal, have yet to be determined, but a number of specialists favor a location at the Canal’s Pacific Ocean exit, since the other projects are currently being built on either side of the Caribbean exit.

“In the past, Panama ranked third or fourth among the world’s largest ‘filling stations’ for heavy fuel vessels. I see no reason why it shouldn’t recover a privileged position among global suppliers of a much more environmentally friendly fuel,” says Cabrera. Bolinaga adds: “There are six countries in Central America. Our Panama plant will be able to provide energy to Costa Rica, El Salvador, Honduras and others, not only through pipelines, but also on trucks or barges carrying up to 50,000 cubic meters. And Central America is quite small. In China, trucks will often travel up to 750 miles to transport gas from processing centers to cities. Many companies will be able to change their machinery to run a more socially responsible fuel.”

Geopolitical and natural events are inevitable in the future, as are their consequences for the global energy market. Panama is certain to see more storms on the horizon, but by continuing to diversify the country’s energy matrix, these storms will be far from perfect. Especially considering the wind and solar projects also underway in the country’s central provinces. LNG plants are one more product in the canal nation’s already diversified portfolio of logistics services, supporting the use of fuels that are less harmful to the ecosystem and contributing to improved forms of production and export in the region, resulting in greater prosperity for all. A classic example of a crisis turned into an opportunity.