The Reliability of the Panama Canal in Times of Volatility

I’ve recently returned from the World Energy Congress in Rotterdam, where global government officials and industry leaders convened to address the challenges and opportunities in today’s energy landscape amidst rising volatility.

In a world marked by geopolitical tensions, economic uncertainty, and climate variability, the significance of the Panama Canal in ensuring reliable transit of goods through its waters – 40% of which constitute energy commodities crucial to global markets – cannot be overstated. We’ve witnessed first-hand over the past year how these risks can disrupt global trade, with the Canal particularly impacted by the El Niño phenomenon.

As this climate pattern threatened to disrupt maritime traffic by causing low reservoir levels in the lakes feeding the Canal due to below-average rainfall, proactive measures were imperative. In response to the drought, the Canal implemented various water-saving measures – from cross-filling locks to reducing the total number of transits – to mitigate potential risks and ensure the uninterrupted flow of goods. These actions not only protected the Canal’s operations but also ensured an adequate supply of drinking water for around half of Panama’s 4.5 million people.

Moreover, the diligent use of the reservation system for all vessels—previously, only about 70% of transits were booked in advance— necessitated by the challenges posed by the drought, notably enhanced the Canal’s reliability.

This system ensured timely transit for all pre-booked vessels, thereby significantly reducing waiting times. In fact, the first quarter of this year saw a 10-hour reduction in wait times compared to the previous year, translating not only to improved efficiency but also tangible environmental benefits from reduced vessel idling and consequent carbon emissions. As we aim for lasting operational improvements, our goal is to make this reservation system more permanent, even as transit volumes begin to normalize, to further enhance the Canal’s reliability.

Most recently, we also announced an update to the regulations concerning the advancement of transit dates for vessels to enhance operational efficiency and accommodate the dynamic needs of global maritime traffic. Under the new regulations, any vessel that has made a reservation may be eligible to transit up to two days or more prior to its originally reserved date.

Looking beyond our immediate situation, while recent forecasts by the World Trade Organization suggest a gradual uptick in global trade activity, with 2.6% expected growth this year, a report by the UN Conference on Trade and Development (UNCTAD) reminds us that pressing global challenges will persist. The report underscores the need for international trade collaboration to address these risks, which “not only hamper economies, but also imperil concerted multilateral solutions.”

As we celebrate the resilience and reliability of the Canal through this most recent drought, we must consider these factors. Specific to the Canal, we must recognize the need for ongoing investment and innovation to ensure its continued viability in the face of evolving threats and shifts in trade flows. Climate variability, in particular, poses a long-term risk to the Canal’s operations, with extreme weather events, like El Niño, presenting potential challenges in the years to come. Additionally, as Panama’s population grows and seaborne trade expands, water demand is only expected to rise.

To address these concerns, a long-term solution will be essential to safeguard the Canal’s future and meet the evolving needs of all our customers. One promising solution we are exploring is the construction of a new reservoir, which would provide capacity for an additional 11 transits. This strategic investment promises longer-term security for the Canal and reliability for its customers, though construction would first demand support from government and communities living in the Panama Canal Watershed area.

While there is no simple answer or single project that can immediately solve the challenge of water, we remain steadfast in our search for innovative solutions. Trust, security, and resilience will be integral to every step as we navigate towards a more sustainable energy future, committed to providing reliable service for decades to come.
Source: By Dr. Ricaurte Vásquez Morales, Administrator of the Panama Canal