**Panama Canal’s $1.6 Billion Reservoir Plan Could Allow for 15 More Daily Ship Transits**
In response to a historic drought lasting over a year, Panama Canal officials are exploring strategies to avert future water shortages, emphasizing a need for a more customer-focused approach. Ricaurte Vasquez, the administrator of the Panama Canal Authority (ACP), held a roundtable discussion Monday with media and stakeholders to celebrate the waterway’s 110th anniversary and to discuss its future challenges and opportunities.
Currently, the Panama Canal connects 180 maritime routes to 1,920 ports across 170 countries, facilitating nearly 3% of global maritime trade, as reported by the ACP. “The Panama Canal has proven its resilience. However, many issues we face, particularly climate-related ones, are beyond our control. We’ve had to employ significant creativity to manage through this dry season,” Vasquez noted during the discussion.
The canal serves key trade routes between the U.S. East Coast and Asia, as well as between Europe and South America, supporting an employee base of 8,549. Vasquez emphasized the need to shift away from the traditional notion that the canal sets prices, policies, and procedures. “We must demonstrate that we are willing to listen and find win-win solutions that ensure our profitability,” he asserted.
Last year marked the canal’s most severe drought since 1950, with water levels hitting nearly 6 feet lower in January compared to the same month in 2023. To mitigate the effects of future droughts, the ACP has proposed the $1.6 billion Rio Indio Reservoir project, which involves constructing a dam on the Indio River. The project will include drilling a 5-mile tunnel to link the reservoir with Gatun Lake, the canal’s water source.
This reservoir initiative, which may take over five years to finish, has the potential to enable an additional 15 ships to transit the canal each day. However, it has met backlash from local farmers and communities concerned about flooding their lands due to the reservoir’s construction. Earlier this month, Panama’s Supreme Court reinstated legislation expanding the ACP’s watershed by an additional 1.4 million acres, up from the previous 741,316 acres.
“We are actively addressing this issue and now operate under a more favorable legal framework following the Supreme Court ruling,” Vasquez explained. “We are collaborating closely with the central government, and water projects related to the Panama Canal have taken priority under the new administration of President Jose Raul Molino.”
While the Rio Indio Reservoir project is a significant focus, the ACP is also seeking diverse strategies to manage future droughts. “We’re looking for a range of solutions rather than a single approach, including operational measures that can enhance reliability without large-scale investments. Options include dredging, relocating water intakes, and managing water salinity in Gatun Lake,” Vasquez said.
Due to the drought, the ACP reduced daily transits from the normal 36 to as low as 18 by February 1. However, recent rains have allowed the Panama Canal to increase the number of daily transit slots back to 36 starting in September. “The recent rainfall has improved our operational conditions,” Vasquez stated. “We’ve restored draft levels to 50 feet and are returning to our regular transit capacity, thanks to the efforts and creativity of our team.”
The reinstatement of the 50-foot draft is crucial for accommodating larger Neopanamax container ships. These vessels, which transport commodities such as liquefied natural gas (LNG) and grains, had to avoid the canal during parts of 2023 due to draft restrictions. Vasquez expressed optimism that LNG and grain carriers will resume transit as water levels recover. “Given the geopolitical situation, particularly the Ukraine conflict, significant LNG volumes are expected to be exported to Europe from the United States through the Panama Canal,” he added.
Despite a 1.5% decline in tonnage passing through the canal in fiscal year 2023, the ACP reported a revenue increase to $4.9 billion, marking a 14.9% rise from the previous fiscal year. “In our first fiscal quarter, we benefited from a congestion premium driven by anticipated rains in October, leading to substantial revenues during that period,” Vasquez explained. “While less transit overall has reduced revenues, the windfall in the first quarter has balanced that out.”
