Navigating Drought: Panama Canal’s Reservoir Proposal

⏱️ 13 min read

Today we go on a journey where water meets ambition and innovation bridges continents. We examine one of the world's most interesting engineering accomplishments—the Panama Canal. This isn't just a talk about locks and ships; it's a story of survival, adaptation, and reviewing possible solutions during a crisis now happening. Picture this: The Panama Canal is confronting a relentless drought, threatening global trade routes and supply chains. Now, imagine a daring proposal surfacing—a reservoir rising from the Indio River's depths, promising to reshape not just waterways, but destinies. We’ll discuss this audacious move and the role of risk management in charting the canal's future course. This isn't just another story; it's the pulse of a world in motion.

Welcome to That's Life, I Swear.  This podcast is about life's happenings in this world that conjure up such words as intriguing, frightening, life-changing, inspiring, and more. I'm Rick Barron your host. 

That said, here's the rest of this story  

A recent publication from the Intergovernmental Panel on Climate Change (IPCC) of the United Nations emphasizes the imperative for global cooperation to avert progressively more severe climate consequences in the foreseeable future. The report and recommendations put forth by climate specialists advocate substantial reductions in greenhouse gas emissions, especially in sectors like energy generation and transportation.

Yes, you’ve heard many reports on the so-called climate change impacting the world. It’s nothing but a wild hoax that the world is facing extreme climate issues.

Contain ship crossing into the Panama Canal. Courtesy of: Container News

Well, hold that thought.

There’s a happening taking place in Central America. That happening is what’s called a big drought. The current drought in Panama is part of a more extensive and prolonged issue. While 2023’s drought stands out as the most severe in over a century, it is not an isolated occurrence. Panama has witnessed a growing number of intense weather-related disasters over the past 25 years, underlining the need for urgent solutions.

From 2013 to 2015, the country endured its driest three consecutive years and was also battered by four hurricanes during that period. Eight of Panama's most devastating storms have occurred within the last 25 years. When combined with high temperatures and meager annual rainfall, the Panama Canal now confronts significant challenges driven by climate change. Yes, the ‘C’ word.

Fortunately, Panama received a welcome relief with some much-needed rainfall towards the end of June in 2023, allowing canal authorities to postpone drought-related restrictions. However, Ayman Omar, an expert in global supply chain management and sustainability, cautions that this relief is only temporary.

"The fundamental question remains unchanged: How can we effectively address the impact of climate change on global transportation and supply chains?"

For more than a century, the Panama Canal has served as a vital conduit for ships to navigate between the Pacific and Atlantic Oceans, facilitating the acceleration of international trade.

However, a prolonged drought has left the canal wrestling with a severe water shortage, a resource that’s very important for the operation of its locks, which are used to raise and lower ships. As a result, canal authorities have been compelled to significantly reduce the number of vessels permitted to traverse the waterway. This predicament has given rise to costly challenges for shipping companies and has prompted complex debates about water usage in Panama. 

Think about this data point. Astonishingly, it is estimated that the passage of a single ship consumes as much water as half a million Panamanians would typically use in one day.

Oystein Kalleklev, the CEO of Avance Gas, a company involved in propane transportation from the United States to Asia, described the current situation as the most disruptive in the canal's history. The Panama Canal, an engineering marvel launched in 1914, handles approximately 5 percent of the world's maritime trade, and its troubles exemplify the vulnerability of critical components within global supply chains. 

For example, in 2021, a massive container ship became stuck in the Suez Canal, causing a significant disruption to global trade. The surge in demand for products such as surgical masks, household appliances, and garden equipment during the pandemic further strained supply chains to their limits.

In recent years, water scarcity has become a recurrent issue in Panama, potentially prompting some shipping experts to consider bypassing the canal if the situation deteriorates. Fewer transits through the canal would not only deprive the Panamanian government of tens of millions of dollars in annual revenue, but also increase shipping costs and contribute to higher greenhouse gas emissions due to longer travel routes for ships. 

Yes, that would mean a hike in consumer goods.

Despite Panama's equatorial climate, which traditionally provides ample rainfall, 2023 saw a 30 percent reduction in precipitation levels. This decrease has resulted in diminished water levels in the lakes that feed the canal and its essential locks. The immediate cause of this water shortage is the El Niño climate phenomenon, which initially brings hotter and drier conditions to Panama. However, scientists believe that climate change may be extending dry periods and elevating temperatures in the region.

Prior to the water issues, as many as 38 ships navigated the canal daily, but the canal authority has reduced this average to 32 vessels in July of 2023 and has recently announced even stricter limits, likely resulting in fewer than 30 ships per day. Further restrictions may be imposed if water levels remain low. Additionally, the canal authority has imposed limitations on a ship's draft, which is a ship's hull which is the vertical distance between the waterline and the bottom of the hull (keel), thus reducing the weight it can carry, to conserve water.

Key points in Panama Canal. Courtesy of Researchgate.net

Container ships, transporting finished consumer goods, typically schedule their passage well in advance, experiencing minimal delays. In contrast, ships carrying bulk commodities usually do not book their passage, creating a costly dilemma for bulk shipping companies. They can either risk waiting for days [which is approximately 20-25 days on average currently], pay a substantial fee to expedite their transit, or opt for longer alternative routes bypassing the canal. 

Some companies, like Avance Gas, have paid significant sums, with some shelling out over $2 million to avoid missing their scheduled assignments. Consequently, these added costs are often passed on to consumers already fighting with inflation.

Nonetheless, it is expected that canal traffic will continue to operate at reduced levels in the months ahead to conserve water resources, as substantial amounts are expended each time a ship traverses the canal's locks during its 40-mile journey across Panama.

The drought has created a perplexing dilemma for Panama's leaders, who must balance the water requirements of the canal with its country’s population. Over half of Panama's residents rely on the same water sources that supply the canal. The canal's board has recently proposed constructing a new reservoir in the Indio River to bolster water supply and boost canal traffic. This canal, which contributes over 6 percent to Panama's GDP, could potentially accommodate an additional 12 to 15 daily ship passages with the new water source.

The estimated cost of building this reservoir is nearly $900 million, but subject to going up, and the canal authority may begin soliciting bids from contractors around the middle of 2024, with construction potentially starting in early 2025. However, delays are possible, as evidenced by the construction of larger locks, which concluded two years behind schedule in 2016 and was marred by cost disputes.

Creating the new reservoir would require the acquisition of land protected by a 2006 law, potentially displacing some of its inhabitants. While it is expected that Panama's government will pass a law to lift the ban on acquiring land, some suggest that alternative water sources could be developed in different locations.

In addition to creating a new reservoir in the Indio River, west of Gatún Lake, another idea has been Bayano Lake to the east, although utilizing its resources would require extensive piping of water over great distances, as the reservoir also serves Panama City's hydroelectric needs.

However, any progress on this front must navigate legal hurdles, as current laws prohibit the construction of reservoirs beyond those sustaining the existing lakes.

While these proposals sound good on paper, one has to think of another concern. How it would impact the people of Panama. 

Since the 1950s, Panama’s population has quadrupled, with over half of the nation now dependent on the reservoirs such as Gatún Lake and the smaller Alajuela lake— for their potable water supply, meaning water suitable for drinking.

Gloria Arrocha Paz, a meteorologist at the Panama Canal Authority, noted, "Previously, the canal's reservoirs played a minor role in water usage, but now they're essential, equivalent to four or five lockages per day."

Global shipping demands have surged steadily since the canal's launch in 1914. Slicing through the narrow passage, it slashes thousands of miles off voyages that might otherwise navigate around the southern tip of South America or through the tumultuous Red Sea, where recent Houthi attacks have disrupted traffic.

A significant expansion in the Panama canal was completed in 2016 introducing two new locks capable of accommodating substantially larger "neo-Panamax" vessels. These ships, larger and heavier, necessitate deeper water for passage through the canal when fully loaded. Earlier investigations revealed that canal authorities disregarded warnings about the necessity of securing new water sources for the expansion's success.

Decades of deforestation have significantly reduced the landscape's capacity to absorb floodwaters. Collaborating with the Panama Canal Authority, the Smithsonian Tropical Research Institute is engaged in forest restoration initiatives and research to determine optimal planting strategies for enhancing the forest's ability to act as a "sponge," mitigating both wet and dry spells while delivering additional climate and ecological benefits.

Without a new water source, the Panama Canal stands to lose significant business. Although other maritime routes are longer and more expensive, they offer greater predictability and fewer uncertainties. Options include transporting goods between Asia and the United States via the Suez Canal to the East Coast and Gulf Coast or shipping goods from Asia to the West Coast ports and then transiting them by train or truck.

Yes, there are options but each one comes with its own problems.

Sustained disruptions at the canal may fuel interest in developing land routes through countries like Mexico, Colombia, and others with coastlines on both oceans, offering alternatives to maritime transit.

Securing new water supplies for the canal could become a race against climate change. Panama's extensive rainfall records, spanning approximately 140 years, provide scientists with valuable insights. While it remains uncertain how climate change affects El Niño, two of the driest El Niño periods in the last 140 years have occurred in the past quarter-century. The current El Niño could potentially be the third. Although it does not definitively confirm climate change, it aligns with the predictions of many climate change models. 

What can we learn from this story? What's the takeaway?

Panama is one of the wettest countries in the world and the canal and its surrounding lakes have been blessed with an abundance of water. However, in 2023 a rainfall deficit, exacerbated by the El Niño weather phenomenon, led to the water levels in Lake Gatun dropping. 

What work can be started in 2025 hopefully, to address demand for cargo traffic through the canal, may not be enough. The proposed project to address the current issue of drought may not be enough for the next 50 years, as called out by Gloria Arrocha Paz, a meteorologist at the Panama Canal Authority.

Well, there you go, my friends; that's life, I swear

For further information regarding the material covered in this episode, I invite you to visit my website, which you can find on Apple Podcasts/iTunes, for show notes calling out key pieces of content mentioned and the episode transcript.

As always, I thank you for listening and your interest. 

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