El Niño Returns to Threaten Panama Canal, Global Shipping
El Niño is strengthening, threatening the Panama Canal's water supply and prompting new limits on daily ship transits.
Just two years after a historic drought crippled the Panama Canal, the waterway is again facing a serious threat. A strengthening El Niño is reducing rainfall in the region, shrinking the reservoirs that are vital to the canal's operation, and forcing authorities to prepare for significant shipping disruptions.
The canal, which relies on fresh water from the man-made Gatún and Alajuela lakes to operate its locks, is already seeing the effects. The Panama Canal Authority has announced it will cap daily transits at 34 vessels starting September 4, reducing that number to 32 by September 15. These measures echo the restrictions imposed during the 2023-24 drought, when daily transits were cut to as few as 22 ships.
El Niño's impact is being felt through record-high air temperatures and well-below-average rainfall, particularly around the canal. Steven Paton, who runs the Smithsonian Tropical Research Institute's monitoring network, noted that some stations are reporting record or near-record low values. As the dry conditions persist, projections indicate water levels will continue to drop, potentially forcing the authority to tighten restrictions further.
The consequences are already rippling through the shipping industry. The canal authority has acknowledged that some ships have paid over one million dollars at auction for priority passage. For many shippers without such budgets, the alternative is a lengthy detour around the Cape of Good Hope in Africa. This August, roughly half of gas carriers heading to Asia have chosen this longer route, the highest share in a decade. A large gas tanker traveling from Houston to Japan takes about 26 days via the canal but 45 days around the Cape.
Looking ahead, the U.S. National Oceanic and Atmospheric Administration's Climate Prediction Center forecasts a greater than 90% chance of a "very strong" El Niño event during the fall and winter of 2026-27. This has led analysts at Clarksons Securities to identify El Niño as a key risk for a shipping sector already dealing with capacity constraints and geopolitical tensions.
In the long term, Panama is exploring the construction of a new reservoir at Río Indio, which the canal authority says would secure water for the canal and over half the population for the next 50 years. However, the project faces opposition from environmental activists who argue it is unnecessary and suggest alternatives like Lake Bayano.