Great Expectations for the Port of Houston: An Update

The Panama Canal Expansion.

Unquestionably, one of the most significant growth events in the Houston region involves the extensive expansion of infrastructure and operations at the Port of Houston to coincide with the current expansion of the Panama Canal.  The $5.25 billion Panama Canal expansion project, which began in 2007 and originally planned to be completed in 2014, will accommodate the increasing numbers of larger-than-Panamax ships which cannot currently traverse the canal system. With the completion and operation of two new flights of locks parallel to and in addition to the old existing locks, the shipping capacity through the canal system will be doubled.  Almost 8,000 miles will be saved for these post-Panamax ships by bypassing the trip around South America.

When this more efficient link is created between the Gulf of Mexico and growing Asian markets, up to a 40% growth is predicted for the Port almost immediately, and exports through the Port are expected to increase five-fold by the year 2035.  This predicted growth will be brought about, in large part, by the current natural gas boom in Texas.  The liquefied natural gas (LNG) industry in Texas is likely to see significant export growth when LNG vessels, not currently allowed through the Canal because they are too big, will be able to use the Canal after its expansion. Significant export growth through the Port is also expected to come from efforts to further capitalize on the Panama Canal expansion by capturing an exploding coal export market.  Coal export terminals, such as Kinder-Morgan here in Houston, are being built or expanded to provide U. S. coal producers increased opportunities for coal exports to Asian markets.

To accommodate all the expected increased cargo volumes and larger ships, the Port is proceeding with a $3 billion expansion of infrastructure and operations at the terminal facilities and in the Ship Channel.  Berths, cranes and other terminal facilities will be expanded or modernized.  Completion of a significant portion of the Bayport Container Terminal is expected to triple the container-handling capacity of the Port.  About $1 million will be spent on dredging projects at the Bayport and Barbours Cut terminals to prepare for bigger ships and match the depth of the recently dredged main stem of the Ship Channel. As part of its job-creation strategies, the Obama Administration is proposing a $50 billion investment package to upgrade the nation's ports and other transportation infrastructure, and the Port of Houston is looking to secure funding for its planned dredging through these initiatives.  

To be ready for all the predicted increased traffic, all these improvements or expansions are scheduled to be completed at approximately the same time as completion of the Panama Canal expansion, which has been anticipated for the Fall of 2014 to coincide with the Canal’s 100th anniversary.  However, completion of the Canal expansion project is already at least a year behind schedule, and possibly facing more delays.

On December 31, 2013, the cash-strapped Spanish consortium constructing the new locks threatened to suspend all work if its demands for more money are not granted.  Currently, the project has over $1.6 billion in cost overruns, blamed on allegedly flawed geological studies of the terrain.  The construction consortium and the Panama Canal Authority are in a serious dispute as to who should pay for these cost overruns.  While the two sides are at serious odds over who should pay for the cost overruns, which could put the overall project bill at close to $7 billion, intense negotiations are underway to keep the project moving forward.  Nevertheless, this dispute threatens to delay a 2015 completion of the project, which is only 72% complete overall and 67% complete as to the new locks being built by the consortium.

Since all the various improvements or expansions at the Port of Houston and in the Ship Channel have been scheduled to be completed this year at approximately the same time as expected completion of the Panama Canal expansion, it is not clear what financial impacts might result for the Port with the currently expected delays in the Canal project. 

Beyond the Panama Canal.

In addition to the significant economic growth expected for the Houston region as a result of the expansion of the Panama Canal, whenever that is completed, at least two other major projects are potentially looming which will further enhance Houston’s maritime commerce growth.  These projects, if built, will be in addition to and in competition with the Panama Canal.

First, Colombia and China are considering a new 137-mile rail link from Cartagena, on the Caribbean Sea, to the Pacific coast 280 miles away.  Cargo would be off-loaded ships docked at either the Caribbean or Pacific port and transported by rail to the other port for loading on ships for export.  While not offering as efficient and perhaps cost-effective alternative to the Panama Canal, it will provide a new avenue for maritime goods to quickly travel across the continent between the Atlantic and Pacific Oceans.

Perhaps the most significant project being considered as a new and additional option to the Panama Canal, and likely a major competitor with it, is a rival canal in Nicaragua. A far-fetched idea? Not at all!  In June 2013, Nicaragua's Parliament approved a plan to grant a 50-year concession to a Hong Kong-based company to design, finance, build and operate a canal through Nicaragua to connect the Caribbean Sea and Atlantic Ocean with the Pacific Ocean.  The concession can be extended for another 50 years once the canal is operational. The proposed 190-mile-long canal will dwarf the length of the Panama Canal and will be able to handle the world's largest ships, including the 10% of the world's merchant fleet that are already too large for even the new set of locks being constructed in Panama.

Work on the $40 billion-project will begin in 2015, a year later than originally planned, and will take six years to build. The project, which might be the biggest megaproject in Latin America’s history, is slated to include two deep-water ports, two airports, a railroad, two free trade zones and an oil pipeline.  According to the Nicaraguan government, the combined impact of growth in East-West trade and in ship sizes supports construction of a second canal across Central America. Within 10-15 years, growth in global maritime trade is expected to cause congestion and delays in transit through the expanded Panama Canal without a complementary route through the isthmus. Additionally, by 2030, the volume of trade addressable by the Nicaragua Canal will have grown by 240% from today.

All these various projects or potential projects make it clear that the Port of Houston, and indeed the region as a whole, is well-positioned for significant commercial growth in the near future, and likely one of the most positively impacted U. S. ports.