Panama Canal Forced to Balance Shipping Demand with Need for Drinking Water

By Anastasia Moloney

PANAMA CITY, March 20 (Thomson Reuters Foundation) – As a colossal Chinese container ship maneuvered into the narrow Miraflores locks on the Panama Canal, some 27 million gallons of water rose around it, propelling the vessel along this vital maritime shortcut between the Pacific and Atlantic Oceans.

But the critical water cushion that lifts and lowers ships through a series of locks along the canal is deflating because of repeated droughts, disrupting a key global trade route and slashing revenues that underpin Panama’s economy.

What is happening along this artificial waterway shines a spotlight on how global warming and extreme weather caused by climate change might affect the ocean shipping industry that moves 80% of world trade.

The slowdown in activity also comes as attacks on ships in the Red Sea by Yemen’s Houthi group have prompted shipowners to divert vessels to other routes.

But right now, the Panama Canal – which handles nearly 3% of all maritime trade – is ill-placed to take up the slack. With the volume of its transits down by about one third, global maritime trade flows face being reshaped. 

This could see thousands of ships taking longer routes, which in turn would increase climate-changing carbon dioxide emissions and shipping costs, according to industry experts.

A severe drought last year caused water levels in Gatun Lake, the main rainfall-fed reservoir that feeds the canal locks, to fall. October saw the lowest rainfall on record for that month since 1950. 

Hotter-than-average temperatures – 2023 was the hottest year on record – worsened by the El Nino weather phenomenon that sees warmer ocean surface temperatures in the eastern and central Pacific have also increased evaporation from the lake.

“We depend on rainwater,” said Ilya Espino de Marotta, the canal’s first chief sustainability officer.

“You used to see a dry year every 15 to 20 years. Now we saw a dry year in 2016, one in 2019, one in 2023 so obviously there’s a climate issue we need to address,” she said.

The resulting water scarcity is a major problem as each vessel passing through the 50-mile (80-km) trans-oceanic waterway uses some 51 million gallons (193 million liters) of water from Gatun Lake.

The lake also provides drinking water to about half of Panama’s 4.5 million people and balancing these key but competing demands on a finite resource will be a critical issue for whoever comes to power after a presidential election in May.

Espino de Marotta says drinking water is prioritized but given the canal’s economic importance, water supply for both shipping and people must remain viable. 

Last year, for the first time in its more than 100-year history, the Panama Canal Authority (ACP) was forced to restrict ship transits due to low water levels in Gatun Lake. Queues of ships built up, and shipping rates increased because of the bottlenecks.

In normal times, around 36 ships carrying everything from liquefied natural gas and soybeans from the United States to copper and cherries from Chile cross the canal each day but this number has been cut to 24 this year.

Erick Cordoba, manager of the canal’s water division and head of a team of engineers and meteorologists monitoring the canal’s watershed, said he needs to prepare for another drought in the next four years.

“During the next drought, drinking water needs will surpass the water available for the transit of ships. That’s the problem,” he said. 

UNCERTAIN FUTURE

Hailed as one of the world’s great wonders when it was opened in 1914, the canal was built by the United States during a 10-year construction endeavor after a failed French dig. It was taken over by Panama at the end of 1999.

While Panama is the world’s fifth-wettest country, the area around the canal experienced one of the two driest years in the country’s 143 years of keeping records in 2023. 

The current shipping restrictions will apply at least until the end of the dry season in April and if rains arrive in May as expected, the canal plans to progressively increase daily slots.

But if the rains are delayed or scarce, there could be more restrictions on shipping.

“The canal needs to redefine or redesign itself to operate in these conditions of minimum water … the solution is in investing in new projects focused on water issues,” Cordoba said.

In the meantime, canal authorities have increased toll fees for crossings and held auctions for transit slots that allow vessels to skip the queues. 

Despite the surcharges, vessel restrictions have caused toll revenues to fall by about $100 million per month since October.

In 2022, canal authorities contributed about $2.5 billion to government coffers, equivalent to about 3% of Panama’s GDP.

The canal is also a source of national pride as it allows this small country to punch above its weight on the world stage. Latin American countries depend on the canal, and about 14% of seaborne trade into and out of the United States also passes through, according to consulting firm McKinsey.

The Panama Canal is not the only waterway in Latin America dealing with the fallout from climate change.

Late last year, Brazil’s port of Manaus recorded its lowest water levels in 121 years because of the effects of a record-breaking drought on the Amazon River and its tributaries, with access for container ships disrupted for more than 50 days.

WATER-SAVING MEASURES 

Canal authorities have also implemented a series of water-saving measures to avoid imposing more restrictions.

One initiative – known as cross-filling – reuses water by transferring it from one lock chamber to another, saving the equivalent of six daily crossings. Another measure – tandem lockages – involves getting two ships to cross at the same time and occupy just one chamber if their size allows it.

Water management also involves protecting and restoring the surrounding tropical forests to mitigate soil erosion, increase water flows and better capture and store water, said Raul Martinez, who heads the canal’s basin management program.

The ACP also runs projects to help raise yields for the thousands of small-scale farmers and coffee producers who are among 320,000 people living in the canal’s basin. Some of these residents receive financial incentives and technical assistance from the ACP to protect the rainforests. 

Yet despite such water-saving measures, new sources of freshwater will be needed. The ACP board has proposed creating a new reservoir on the Indio River, about a two-hour drive away from the canal.

With an estimated cost of about $1.2 billion, the reservoir would take 4-6 years to build and would involve drilling an 8km (5 mile) tunnel through a mountain to pipe water from the reservoir to the Gatun Lake, according to Espino de Marotta.

But the Indio River project needs government approval and would also require laws to be changed as the site for the planned reservoir sits outside the defined watershed area over which the canal currently has jurisdiction.

These decisions now await whoever wins the election in May.

Finance has also yet to be secured. Espino de Marotta said funds would most likely be a combination of canal revenues and loans from multilateral development banks. 

For the project to proceed, it needs the informed consent of around 230 communities who depend on the river. The construction of the reservoir would affect about 2,500 people, authorities estimate. 

RIVERSIDE COMMUNITY REACTION

Among riverside communities the main concern is that building the new reservoir would mean farms and homes would be flooded and their owners would have to be resettled.

“We don’t agree with the project,” said Yaritza Marin, a River Indio Bajo community leader. 

“We don’t know how the dam will affect our community … Instead why don’t they invest in our communities? We lack basic services, healthcare, education and running water,” she said.

Environmental issues and defending community rights have become an increasingly important source of public anger and frustration towards the government in Panama.

Thousands of Panamanians took to the streets last November to protest against a perceived lack of transparency around the renewal of a copper mining contract. This fueled broader dissatisfaction with the government and the River Indio dam project is dogged by similar distrust.

Bolivar Sanchez, another Rio Indio Bajo resident, said he first heard about the reservoir project in 2000 when canal operators hosted workshops in the area, but added that there had been no opportunity for consultation.

“The authorities have to respect the communities and have a proper dialog. We all need water.”

(Reporting by Anastasia Moloney; Editing by Clar Ni Chonghaile. The Thomson Reuters Foundation is the charitable arm of Thomson Reuters.)

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