Panama green lights reservoir project in bid to combat drought restrictions

The Panama Canal board of directors has approved funding for the construction of a new lake in the middle course of the Indio river watershed, a massive project designed to help ensure the waterway can combat droughts. 

For much of 2023 and last year, the canal was forced to slash transits and maximum drafts as Panama endured its worst drought on record forcing a shift in global seaborne trading patterns that have yet to fully correct. 

Work on the $1.2bn project, which includes a huge dam, is slated to begin in 2027 and take four years to complete. A reservoir will be built with capacity for 1.5bn cu m in the Indio river basin and an 8.7 km transfer tunnel, which would go from there to the Panama Canal basin, with the aim of strengthening the freshwater supply capacity of the two artificial lakes that feed the waterway, Gatún and Alajuela.

Between June 2023 and September 2024, transits through the Panama Canal were restricted due to low water levels in the Gatun Lake. There were restrictions to both the total number of transits and ship draft, and ships competed for limited transit slots. 

Despite getting back to normal operations by Q4 last year, shipping volumes have yet to fully recover. 

Between September 2024 and January 2025, ship capacity in deadweight tonnes transiting through the Panama Canal was 10% lower than the 2019-22 average, according to analysis by BIMCO.

“Although there were no transit restrictions during this period, transits of dry bulk, LNG and, to a lesser extent, tanker ships have not recovered to their historical levels,” said Filipe Gouveia, shipping analysis manager at BIMCO. “Transit fees, changes in trade patterns and the establishment of a new normal could all be keeping ships from fully returning to the canal,” he added.