Panama’s drying canal threats global fuel markets

The Panama Canal is currently facing a major challenge due to a lack of rainfall, which has caused a key lake that supplies the canal to dry up. Last October was the driest month in the country since record-keeping began in 1950. As a result, by February, only 18 ships per day will be able to cross the canal, which is about half of the number from the previous year. This is a significant problem for all types of commodities and manufactured goods, but it’s particularly concerning for the energy industry.

Last year, nearly half of all goods transported through the Panama Canal were oil and gas-based products, including diesel, gasoline, and liquefied petroleum gas. This highlights the critical role the canal plays in facilitating the global shipment of energy resources.

The importance of the waterway is especially relevant now, as the US is exporting more propane – a type of LPG used in barbecues and outdoor heaters – than ever before. Overall, the Panama Canal is a vital link for the transportation of commodities, with petroleum and container cargo comprising the majority of shipments passing through the canal.

It is becoming increasingly difficult for ships to pass through the canal due to its low water levels. However, there are still ways to navigate around this issue. Some oil tanker owners have chosen to take a longer route around the southern tip of South America to avoid waiting at the canal’s entrance. This alternative route takes approximately 16 days longer.

Recently, more gas tankers have also been avoiding the canal by turning back. Alternatively, some ships have paid up to $4 million to secure a transit slot and skip the queue.

Regardless of the method used, the transportation of global fuels has become less efficient due to the canal’s low water levels. While this has led to higher rates for shipowners, it could also result in increased fuel costs. This issue is not limited to energy transportation, as other goods such as manufactured items, fruit, bricks and lumber are also experiencing delays.

From now until February, the number of daily transits will decrease, worsening the situation before it even improves.