After a historic drought that paralyzed the vessels that paralyzed the Panama Canal, Panama Canal authorities are advancing the massive investment in new infrastructure to mitigate future droughts and the risks of low water levels that have plagued the major global trade gateways these days.
The Panama Canal relies on freshwater and rainfall for its work.
Panama Canal Bureau manager Ricaulte Vazquez told CNBC.
In a good year’s rain, it means that over 50 ships pass through the locks of the canal in a day, but in recent years the weather has not cooperated. The severe drought conditions collided with the area between late 2022 and 2024, forcing the canal to reduce transport and install weight limits for vessels to conserve water.
The canal is important for the US economy and trade. The United States is the largest user of the Panama Canal, with total US goods exports and import containers accounting for around 73% of the Panama Canal traffic, with 40% of all US container traffic passing through the Panama Canal each year traveling each year. Overall, around $270 billion in cargo is processed each year.
In April, canal management began the prequalification and selection process for the concessionaire to build a land bridge, including what is described as the flagship natural gas pipeline line for moving natural gas liquid (NGL) without relying on the canal itself. Port terminals built on both the Atlantic and Pacific coasts, as well as on either coast, will also be built, allowing the terminals to accommodate containers and roll-on and roll-off cargo.
The pipeline allows liquefied oil gas, ethane, butane and propane to transport from the Atlantic to the Pacific terminal, with separate containers loaded and product can be transported to Asia. Canal officials hope this will attract more LNG transits through the canal.
The Panama Canal Bureau reported that ship transport fell 29% in 2024, marking the biggest hits in LNG and dry bulk transit. LNG transits decreased by 66% and dry bulk transits decreased by 107%.
According to S&P Global Data, water levels have returned to regular operating conditions, but LNG traffic has not returned to pre-drought transport activities, so it continues to choose long routes around Cape Goodhope in Africa.
Vazquez told CNBC that US energy companies are “drinking at the possibilities” of this alternative. In terms of time, Vazquez said the pipeline is competitive against crossing the canal and is now water dependent, making it more reliable. “This is important because with many of these products it’s important to have reliability and delivery on time,” he said.
“We decided to do an overpass to complement the waterway,” Vasquez said. “We recognize that these are high value products with destinations in Asia,” he said, noting that the project was announced in Tokyo, the biggest buyer of these energy products.
The container ship will sail through Miraflores Rock on the Panama Canal near Panama City, Panama on Friday, November 3, 2023. Canal water levels have now been allocated for the number of ships that can use the major world trade arteries. Photographer: Walter Hartad/Bloomberg via Getty Images
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Another approved project is the building at Rio Ind Dam. The Dam and Tunnel Project will add supplemental water to Lake Gatun. Lake Gatun supplies freshwater to the Panama Canal for operation. The old Panamax Rock loses about 50 million gallons of freshwater per container transport. The new Neo-Panamax lock regains about 60% of the water per pass.
Construction of the dam is expected to begin in 2027 and will not be completed until 2032, with an estimated cost of $1.6 billion. That cost is allocated $400 million to compensate and relocate about 2,500 residents from various communities where villages are flooded to create dams.
CNBC was the first television crew to go to one of the villages affected by the project, and villagers who spoke to CNBC said they didn’t want to leave.
Neither project will finish before the next El Niño weather phenomenon is expected in 2027. Vazquez tells CNBC that some of the land bridge elements will be completed, but the pipeline is not expected to be completed between 2030 and 2031.
Watch the video above to learn more about the future of severe drought and climate impacts, and how the Panama Canal plans to escape the outcome of the US economy, global trade and community outcomes.
