Panama Canal bets on new reservoir to end drought restrictions

The Panama Canal's new administrator, Ilya Espino de Marotta, has said the waterway will eventually stop imposing transit restrictions during droughts, but only after a major infrastructure project is completed. The Rio Indio reservoir, expected to take five to six years to build, is designed to secure water for the next half-century for both the canal and more than half of Panama's population.

Until then, the canal remains vulnerable to weather. Espino de Marotta warned that rainfall over the next three months will determine whether further restrictions are needed early next year. The months of September, October, and November are critical for replenishing the reservoir levels that feed the canal's operations.

The waterway depends on two man-made lakes, Gatun and Alajuela, which release millions of liters of fresh water with each transit to lift and lower ships through its century-old locks. Unlike the Suez Canal, which uses seawater, the Panama Canal requires fresh water to function, making it especially sensitive to dry spells.

A strengthening El Nino has raised concerns about water availability. The canal authority had already announced plans to cap daily transits from early September due to the expected longer-than-usual El Nino season. However, a planned reduction in the maximum draft for the Neopanamax locks was postponed on Friday. Draft limits determine how deep a ship can sit in the water, and lower limits force vessels to carry less cargo.

The stakes are high for global shipping, as the canal handles an estimated 3% to 5% of world maritime trade. In recent weeks, some vessels have paid over $1 million at auction just to secure a transit slot.