By Stefanie Eschenbacher and Elida Moreno
PANAMA CITY, Aug 21 (Reuters) – Just two years after the worst drought in the Panama Canal’s history forced ships to wait weeks for passage and triggered multi-million-dollar bidding wars for transit slots, El Niño is again threatening the rainfall that feeds the waterway.
With El Niño strengthening and reservoirs shrinking, the industry is bracing for a repeat of the disruption at one of the world’s most important waterways — and some ships are already taking long detours via Africa.
On Thursday, the Panama Canal Authority walked back a previous pledge to not limit passage as it gears up for a longer-than-usual El Niño season.
1. Where does the canal get its water?
Unlike the Suez Canal in Egypt, the Panama Canal relies on fresh water to operate three sets of locks that allow ships to cross between the Pacific and Atlantic oceans through an 80-km (50-mile) artificial waterway.
Operations depend on two man-made reservoirs, Gatún and Alajuela lakes, which release millions of liters of water with each transit to raise and lower ships through the gravity-fed, century-old locks.
2. Why does El Niño matter for the Panama Canal?
Warming water half a world away in the Pacific Ocean can weaken the winds that bring rain to Panama — starving the reservoirs.
Samuel Muñoz, an associate professor of civil and environmental engineering at Northeastern University, said that when reservoirs run low, the canal authority must cut the number of ships it allows through to conserve water — a reduction that “creates shipping disruptions that ripple through the global economic system.”
3. Why are these water sources vulnerable?
Since May, the Smithsonian Tropical Research Institute’s monitoring network in Panama has recorded some of the hottest air temperatures since monitoring began, with May, June and July each posting record or near-record monthly averages.
“Rainfall during the same period in most of Panama was well below average,” said Steven Paton, who runs the monitoring network, adding that some stations are reporting record or near-record low values, particularly around the canal.
4. How is the Panama Canal Authority responding?
The Panama Canal Authority will start capping daily transit slots at 34 vessels starting September 4 and reduce the number to 32 as of September 15.
However, projections are for water levels to drop further as El Niño goes on, which could lead the authority to tighten again.
It echoes the 2023-24 measures, when drought cut daily transits to as few as 22 ships, according to official figures.
The canal registered an average of 34 to 35 daily transits for the fiscal year of 2026, which runs from October to September.
5. How does this impact shipping?
After reports that one tanker paid more than $4 million for priority passage, the Panama Canal Authority, without giving further details, acknowledged that “some ships which transited recently have paid amounts exceeding one million dollars at auction to meet their specific market needs.”
6. What alternatives are there?
Rohit Rathod, a senior oil market analyst at Vortexa, said that without long-term slot packages or deep auction budgets, many shippers are taking the long way around Africa instead.
So far this August, roughly half of gas carriers heading to Asia have chosen the Cape of Good Hope over the Panama Canal, he said, adding that this is the highest share in a decade.
The tradeoff is steep: a large gas tanker sailing from Houston to Japan takes about 26 days through the Panama Canal — but 45 days around the Cape of Good Hope.
7. What long-term solutions are being explored?
Panama is weighing a longer-term fix: a new reservoir at Río Indio, which the Panama Canal Authority says would secure water for more than half the population and the canal’s operation for the next 50 years, while improving conditions in nearby communities.
Resistance comes from environmental activists, who were instrumental in blocking First Quantum’s mining contract; some argue the reservoir is not necessary and point to alternatives such as Lake Bayano.
8. How does this El Niño compare to earlier ones?
In its forecast issued last week, the Climate Prediction Center of the U.S. National Oceanic and Atmospheric Administration said that El Niño is strengthening, with a greater than 90% chance of a “very strong” event during the Northern Hemisphere fall and winter 2026-27.
Clarksons Securities said in a research note this week that “El Niño is now emerging as a key risk” for a sector already grappling with capacity constraints and geopolitical tensions in the Middle East.
(Reporting by Stefanie Eschenbacher in Mexico City and Elida Moreno in Panama City, editing by Emily Green and Sanjeev Miglani)
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