The Panama Canal Is Reopening Its Slots. The Drought Has Already Rewired American Gas Liquids Trade

The Panama Canal Authority announced in June that it will raise daily booking slots to 35 from August, after higher rainfall at Gatún Lake allowed it to ease restrictions that had constrained shipping since 2023. Neopanamax crossings through the larger locks will also increase. For a waterway that at its worst was handling barely two-thirds of its normal traffic, it is a welcome recovery. The 2023 drought showed how much one of the world's key energy trade routes depends on rainfall in a single watershed, and it changed shipping behaviour in ways that will outlast the water shortage.

In 2023, its water levels fell to the lowest since record-keeping began in 1965. Some reserved slots are auctioned, mainly to very large gas carriers, with a base rate of $100,000 for short-term spot cargoes. Together they account for 63 per cent of US petroleum product exports that cross the Panama Canal, mostly bound for East Asia. When slots became scarce, these cargoes were among the first to divert. In November and December 2023, US LPG flows through the canal were 23 per cent lower than the January to October 2023 average, and ethane flows were 73 per cent lower.

Just as Panama restrictions were pushing US gas carriers toward Suez, attacks on shipping in the Red Sea from November 2023 began pushing vessels away from Suez. For an LPG cargo leaving Houston for Japan in December 2023, the choice was between a scarce and expensive slot at Panama, a risky passage through the Red Sea, or a much longer voyage around the Cape. Exporters with term charters on large carriers absorbed longer voyages and higher fuel bills.

The canal authority has proposed long-term water projects, including a new reservoir on the Río Indio, to secure supply. The recovery in slots helps, but US exporters of LPG and ethane have learned a lesson. Energy security discussions tend to focus on the Strait of Hormuz and on pipelines from Russia.