Maritime

Falling oil prices help Canal project

The falling price of oil and steel is expected to lower the cost of the Canal expansion.

The bids for the third set of locks, the largest component of the project, are due in March.

Carlos Lemos/la prensa

Bargain hunting: A drop in commodity prices is expected to drive down the bids for the third set of locks, the largest component of the Panama Canal expansion project.1129806

The severe drop in the price of a barrel of oil in recent months is expected to reduce the construction cost of the third set of locks for the Panama Canal expansion.

The bids for the locks are scheduled to be received by the Panama Canal Authority on March 3, 2009. The bidding process has been delayed several times based on requests from the companies interested in the project, because of the scope and complexity of the work.

These delays have ended up working to the advantage of the authority, because commodity prices have fallen sharply in the interim.

“There are several things that are helping, not just the low cost of oil, but also the declining prices of materials such as steel,” said Canal Administrator Alberto Alemán Zubieta.

Eight months ago, a ton of reinforced steel was quoted at $1,100, but it is now $600.

The Canal expansion will require approximately 260,000 tons of reinforcement steel, of which 60,000 tons will be for the lock's gates and valves. So any reduction in the price of this commodity is welcome news for the authority, much less a price drop of $500 a ton.

The project will also require an estimated 40 million gallons of diesel fuel. So the drop of oil prices from a high of $146 a barrel to current levels which are under $50 a barrel is also expected to have a significant impact on the overall cost of the project.

Other commodity costs have also fallen, in particular the cost of cement, which will help make the project less expensive.

Although the date of the tender of the third set of locks, the largest component of the project, has been changed several times, the delay is not expected to impact the 2014 completion date for the overall project.

Moreover, the delay could mean substantial savings for the authority.

“That has given us the opportunity to get a better deal,” Alemán Zubieta said.