Panama Canal Expansion Faces a New Problem: Not Enough Water

The $6.9-billion expansion of the Panama Canal might have overcome leaks, labour disputes and financial hurdles, but appears to have run into a mightier foe: Mother Nature.

El Nino has caused a drought in the region and reduced water levels in the lake that makes up about half the 77-kilometre water route, forcing the canal’s operators to limit the draft of a ship – the hull’s depth – that can sail the trade route connecting Atlantic and Pacific oceans.

The restrictions cast a shadow over the opening of the expanded canal, which Panama Canal Authority has pushed back – again – to June.

The expansion, which includes wider locks and deeper channels, comes amid a tough year for the world’s shipping companies. There are too many ships at a time of slowing growth in consumer and industrial demand. Charter rates for ships that carry containers and bulk commodities are at multiyear lows.

The expanded canal will allow passage of ships carrying as many as 14,000 containers, compared with the current 5,000. However, the shallower draft restrictions mean even the current ships cannot pass fully laden, driving up the shipping costs for the carriers and their customers, said Basil Karatzas, a New York-based shipping consultant.

“It’s a little ridiculous, because they have been spending so many billions of dollars to expand the canal, primarily the width of the canal and the canal locks,” Mr. Karatzas said. “And now they have problems with draft restrictions because of weather and low expected rainfall.”

The Panama Canal Authority said the new draft limit of 11.74 metres, down from 12.2 metres, is a safety measure that is temporary, “depending on the level of Gatun Lake at the time of transit.

“The most recent El Nino phenomenon involving similar conditions took place during the 1997-98 season,” said the government agency, which did not respond to interview requests.

The locks set to open in June will allow for a maximum ship draft of 15.2 metres, but only if water levels rise. Otherwise, any advantage of the project will be delayed until rainfall returns or new dams are built, shipping experts said.

“If you suddenly say we’re not going to let you get in with a [15-metre] draft, I can’t put as many containers on the ship as I want to, so basically I’m back to square one. I’m back to my 4,000 containers,” said Frank Townsend, a retired University of Florida professor of civil engineering who was born and raised in the Panama Canal Zone. “Granted, I can have a bigger ship, but I’m not going to be able to put 12,000 containers on, which is what the [expansion] is all about.”

El Nino is a periodic and temporary weather pattern that raises temperatures in the Pacific Ocean and reduces rainfall in the headwaters of Central America that drain into man-made Gatun Lake, through which all ships must sail. The water levels have also been reduced by deforestation of the jungles that surround the feeder rivers, causing erosion and altering the drainage, Mr. Townsend said.

The draft restrictions are welcome news to operators of the rival Suez Canal and U.S. West Coast ports, which can accommodate larger ships, Mr. Townsend said.

Construction of the bigger locks began in 2007 in a bid to gain more ship traffic and revenue, and cement the country’s status as a major shipping hub for the Western Hemisphere. Large container ships from Asia could use the canal to reach the U.S. East Coast and the densely populated parts of the country without having to unload at West Coast ports and send goods east by train.

But there are signs the ultralarge container ships the expanded Panama Canal is designed for are losing favour with the world’s shipping companies. They can cause port congestion and are having trouble finding ports that can accommodate them. At the same time, overcapacity has idled many ships and driven down rates.

Low prices for ship fuel, meanwhile, make it affordable to sail longer routes and avoid the Panama Canal shortcut, which can cost as much as $500,000 (U.S.) to traverse.

Currently, the Panama Canal handles about half the traffic between Asia and the U.S. East Coast, said Michael Kaasner Kristiansen, owner of Panama-based shipping consultancy CK Americas.

To be successful, the canal needs to boost this figure to about 80 per cent by taking ships from the Suez Canal, said Mr. Kristiansen, who doubts the new portions of the canal will be open by June and says the 2016 shipping season has been “lost.”

Mr. Townsend, the engineer, says most large projects face delays, and that if the rains don’t come, more dams could be built along the other rivers that feed into Lake Gatun.

“Very very few projects go from start to finish … without a hiccup. Basically we’re looking at what Mother Nature is going to do and we’re trying to out-think Mother Nature. That’s what engineering is,” he said