Panama Canal prepares for potential drought with strategic upgrades

The Panama Canal is bracing for the possibility of a new drought, which could impact the world’s second-largest waterway within the next four years. Chief Ricaurte Vasquez outlined plans to address this challenge by accommodating larger vessels, securing dedicated passages for certain ships, and expanding the canal’s water reservoirs.

The canal authority has reinstated its standard operations of 36 vessel transits per day and a maximum draft of 50 feet (15 meters) per vessel, following a fiscal year affected by severe drought. This is considered normal for this time of year. He stated that the frequency of droughts is increasing compared to the past, highlighting the canal’s dependence on rainfall. He predicted that Panama is likely to experience another severe drought within the next four years due to changing rain patterns and the effects of weather phenomena such as El Niño and La Niña.

The canal relies on fresh water from rain-fed lakes to operate its locks, which separate the Atlantic and Pacific Oceans. Despite implementing drastic water conservation measures last year, which led to long ship wait times, the authority anticipates meeting its revenue target of $4.78 billion for the current fiscal year ending September 30. The revenue target for the next fiscal year, starting in October, is set at $5.6 billion. Active rainfall through November is expected to support an average of 34.5 transits per day, compared to as low as 24 per day this year.

Vasquez indicated that preparations are underway for a $2-billion expansion of one of the canal’s water reservoirs, pending approval from Panama’s Supreme Court. This project, including engineering studies, is expected to take 18 to 24 months. He suggested that market financing might be advisable for this expansion.

The expansion, along with changes to accommodate larger vessels and dedicated passages for certain ships—such as those carrying liquefied natural gas (LNG), liquefied petroleum gas (LPG), and refrigerated cargo—aims to maintain tonnage capacity and minimize delays while conserving water. Panama’s average tonnage per transit has increased to 43,000 metric tons this year, up from approximately 38,000 tons in 2023, which helps reduce water use.

The canal also plans to engage in new discussions with LNG producers and other market participants in September to explore dedicated passage options for these vessels.